India - Infra Sector

India Infrastructure Sector
An undeniable growth opportunity constrained by fiscal stress
Investors are advised to refer disclosures made at the end of the research report.
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 1
20 December 2021 India Infrastructure Sector
Contents
Story in Charts ................................................................................................................................................................... 4
Infrastructure capex: Need of the hour for growth revival ................................................................................................... 7
National Infrastructure Pipeline comes to the fore with plans of over Rs 100trn in infrastructure capex over FY20-25 .........10
Transport is the largest driver of infrastructure spending but more needed ........................................................................13
The roads segment has witnessed the bulk of the action ....................................................................................................15
Railways has strong potential but needs to act fast ............................................................................................................22
Ports and Airports .............................................................................................................................................................26
Urban Infrastructure .........................................................................................................................................................27
Water segment has been the current government’s focus area ..........................................................................................30
Irrigation ..........................................................................................................................................................................33
River inter-linking: Huge EPC opportunity but lengthy execution timeline and challenges on land, environment, R&R .........36
Energy segment capex lacks a clear roadmap .....................................................................................................................39
Despite the loopholes, NIP is an appreciable attempt at a process-based approach to infrastructure development .............44
Counter-cyclical infrastructure spending – will the government go for it? ...........................................................................51
Distressed public debt situation leaves limited room for growth stimulus ..........................................................................52
Past episodes of fiscal stress suggest capex share in government spending has deteriorated structurally ............................57
Comparison with the Global Financial Crisis of 2008 and 1997-2003 slowdown ...................................................................59
States account for ~58% of infrastructure spending but are in a significantly worse financial condition than the centre.......62
National Monetization Pipeline: Center’s recourse to bridge the funding gap until the fiscal crisis abates ...........................69
Spending and new awards have picked up sharply YTDFY22 ...............................................................................................77
Spending on roads is a silver lining in the clouds ................................................................................................................80
Valuation: Selective picks driven by earnings and cash flows ..............................................................................................86
Companies section
Larsen & Toubro ...............................................................................................................................................................90
NCC ................................................................................................................................................................................ 126
KNR Construction ............................................................................................................................................................ 147
PNC Infratech.................................................................................................................................................................. 170
Annexure ........................................................................................................................................................................ 192
Systematix
India Infrastructure Sector
20 December 2021
Institutional Equities
India Infrastructure sector Systematix

20 December 2021
An undeniable growth opportunity constrained xx December

by fiscal 2021
stress
SECTOR REPORT Infrastructure development is the need of the hour for India to achieve its USD2021
xx December 5trn
GDP target by 2025. While the government has spent heavily through budgetary
Industry
SECTOR REPORT
xxxxxx
Infrastructure Systematix
allocations over the past few years, challenges on the fiscal front constrain an
xx December
out infrastructure capex-driven stimulus. The centre has launched an ambitious
all-
2021
BSEIndustry
Infrastructure v/s BSE Sensex Institutional
plan of spending Rs 111trn through the National Infrastructure Pipeline Equities
(NIP). It has
xxxxxx unfurled other initiatives such as ‘Make in India’ and the production-linked-
180
SECTOR REPORT
Industry incentives (PLI) scheme to boost India’s competitiveness globally, which also calls
Systematix
160
xxxxxx for an infrastructure upgrade. We estimate the overall infrastructure capex to grow
140
IndustrySECTOR REPORT at a CAGR of 11.4% over FY21-26E – primarily due to spending on water supply,
120
transport and urban infrastructure, against the 19.4% CAGR witnessed over FY13-
100 19. Smaller niche players with specific exposure toInstitutional
these segments areEquities
a better
80 play on the opportunity than larger diversified players that are more exposed to
60 economy-wide slowdown. NCC Ltd (NJCC) is our top pick in the sector for its
Apr-21
May-21
Sep-21
Nov-21
Jan-21
Feb-21
Mar-21
Dec-20
Jul-21
Aug-21
Dec-21
Jun-21
Oct-21
inexpensive valuations juxtaposed against a significantly improved balance sheet

BSE Infrastructure SENSEX
(0.25x net D/E as of Sep-21) and strong order backlog (4.5x TTM book: bill). We
recommend BUY on Larsen & Toubro (L&T), KNR Construction (KNRC) and PNC
Source: Bloomberg, Systematix Institutional Research
Infratech (PNCL).
Infrastructure deficit directly impacts India’s global competitiveness
India’s ambitious growth targets depend heavily on its infrastructure upgrade. On
Sector recommendations
the World Economic Forum’s Global Competitiveness Index, India ranks 72 on road
CMP TP Upside
Reco connectivity and 105 on electricity access. This implies that the infrastructure
(Rs) (Rs) (%)
L&T 1,866 2,287 23 BUY
bottleneck is a primary constraint to improving its global competitiveness. Growing
population and rapid urbanization further highlight the need for investment in
NJCC 75 132 75 BUY infrastructure.
KNRC 294 356 21 BUY The government hopes to spend ~Rs 111trn over FY20-25 to meet this deficit
PNCL 295 356 21 BUY Against an annual run-rate of <Rs 5trn during the 11th Five Year Plan (FYP; FY08-12)
Source: Systematix Institutional Research and Rs 7.2trn during the 12 FYP (FY13-17), India swiftly ramped up infrastructure
spending to ~Rs 10trn p.a. levels over FY18-19; a slowdown followed due to rising
fiscal stress and pandemic impact. The centre hopes to spend ~Rs 111trn over FY20-
25 through the NIP; this seems over-ambitious but still lays a solid foundation for a
curated pipeline of projects to focus on.
Fiscal stress a concern but YTDFY22 trends on revenue buoyancy encouraging
Immediately after the COVID-19 pandemic, India’s debt and interest levels (especially
for the states) approached alarming levels last seen in 1999-2002 (as a % of
government revenue collections). The worst now seems behind with strong revenue
buoyancy in YTDFY22 led by robust GST collections and overall sentiment
improvement. This is also reflected in a strong pick up in government spending
YTDFY22 – centre and state TTM capex is up 40% YoY and above the FY19 levels. We
estimate overall infrastructure capex to grow at a CAGR of 11.4% over FY21-26E vs.
19.4% CAGR over FY13-19.
We initiate coverage on L&T, NJCC, KNRC and PNCL with a BUY rating
L&T, NJCC, KNRC and PNCL have delivered exceptional performances consistently for
an extended period in a sector difficult to survive and generate OCF/FCF. NJCC is our
Amar Kedia top pick as it has deleveraged significantly (to be almost debt-free by FY24E) and has
amarkedia@systematixgroup.in a strong order backlog (4.5 TTM book: bill); it is also the most inexpensive stock in
+91 22 6619 8084 the pack.
Story in Charts
Exhibit 1: Infrastructure spending trajectory likely to slow Exhibit 2: …as increasingly, debt is being used to fund government
modestly over FY21-25E; 11.4% CAGR still reasonable revenue deficit and capex
(Rs bn)
(Rs tn) (x)
8,000
35 4.0
7,000 3.5
30
6,000 3.0
25
5,000 2.5
20
4,000 2.0
15
3,000 1.5
10
2,000 1.0
5 0.5
1,000
0 0.0
0
FY22E
FY24E
FY26E
FY90
FY92
FY94
FY96
FY98
FY00
FY02
FY04
FY06
FY08
FY10
FY12
FY14
FY16
FY18
FY20
FY12
FY15
FY25E
FY06
FY07
FY08
FY09
FY10
FY11
FY13
FY14
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
FY24E
FY26E
Debt increase Capex
State Infra spend Centre Infra spend Debt increase/Capex (RHS) Linear (Debt increase/Capex (RHS))
Source: CMIE, Systematix Research Source: CMIE, Systematix Research
Exhibit 3: A large part of India’s revenues used to service debt… Exhibit 4:…as its debt/revenue is amongst the highest globally
Interest payments as % of debt (Borrowing cost) Govt debt/Govt revenue

12 7
10.0 5.9
10 6
4.9
5
8
6.5 4 3.5
6 3.0 2.9
3 2.6 2.4 2.3
1.9 1.8
4 2 1.3 1.2
1 0.6
2
0.7 0.7 0.6 0.4 0.3 0.1 0
0
USA
Italy
India
Indonesia
Malaysia
Vietnam
Brazil
Mexico
UK
China
Japan
Spain
Germany
Mexico India Italy Spain Brazil USA Germany United
Kingdom
Source: CMIE, Bloomberg, Systematix Research Source: CMIE, Bloomberg, State Budgets, Systematix Research
Exhibit 5: However, YTDFY22 capex by the centre is up sharply Exhibit 6: State capex has also turned sharply positive on a TTM
on a low base as the government has chosen to spend basis
(Rs mn) (Rs bn)
2,50,000 200% 5,000 50%
150% 4,500 40%
2,00,000
4,000 30%
100%
1,50,000 20%
3,500
50% 10%
1,00,000 3,000
0% 0%
2,500 -10%
50,000 -50%
2,000 -20%
0 -100%
1,500 -30%
FY11
YTDFY22
FY10
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
Mar-15
Mar-16
Mar-17
Mar-18
Mar-19
Mar-20
Mar-21
Sep-15
Sep-19
Sep-16
Sep-17
Sep-18
Sep-20
Sep-21
Monthly run-rate Centre Infra capex YoY growth (RHS) TTM State Capex YoY growth (RHS)
Source: CMIE, Systematix Research Source: CAG, Systematix Research
Exhibit 7: Tender data too suggests sharp pick up on a TTM basis… Exhibit 8: …while award data is almost close to the previous peak
(Rs bn)
(Rs bn)
12,000 80%
6,000 120%
10,000 60% 100%
5,000
40% 80%
8,000 4,000 60%
20%
6,000 40%
0% 3,000
20%
4,000 2,000 0%
-20%
2,000 -20%
-40% 1,000
-40%
0 -60% 0 -60%
Aug-17
Jun-18
Dec-15
May-16
Mar-17
Dec-20
Oct-16
Apr-19
May-21
Oct-21
Jan-18
Nov-18
Jul-20
Feb-15
Jul-15
Sep-19
Feb-20
Apr-14
Apr-19
May-16
Dec-15
Mar-17
Dec-20
Aug-17
May-21
Feb-15
Oct-16
Oct-21
Jan-18
Jun-18
Nov-18
Sep-14
Jul-15
Sep-19
Feb-20
Jul-20
TTM tenders YoY growth (RHS) TTM awards YoY growth (RHS)
Source: Projects Today, Systematix Research Source: Projects Today, Systematix Research
Exhibit 9: Asset monetization could fund 20% of centre’s capex Exhibit 10: Sector orderbook: bill ratio is on an uptrend
1,200 20% (x)
1,000 4.0
15%
800 3.2
Rs bn
600 10%
2.4
400
5% 1.6
200
0.8
0 0%
FY22E FY23E FY24E FY25E 0.0
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
Direct Asset Monetisation
Direct monetisation as % of Total Infra capex (RHS)
Direct monetisation as % of Centre Infra capex (RHS) Book to bill ratio
Source: Niti Aayog, Systematix Institutional Research Source: Company, Systematix Institutional Research
Exhibit 11: Within the infrastructure sector, PNCL/KNRC/Ashoka/GR Infra standout for OCF/FCF generation and negligible interest cost
Market Cumulative OCF- Cumulative FCF- Cumulative OCF as Cumulative FCF as Average Interest
(Rs mn) Cap Interest Interest % of mkt cap % of mkt cap paid as % of EBITDA
(Rs bn) FY12-21 FY18-21 FY12-21 FY18-21 FY12-21 FY18-21 FY12-21 FY18-21 FY12-21 FY18-21
NCC 46 (5,216) 2,608 (23,627) (9,178) -11% 6% -51% -20% 60% 42%
KNR Constructions 82 17,770 9,628 6,528 2,187 22% 12% 8% 3% 8% 7%
PNC Infratech 75 18,742 15,467 6,960 8,419 25% 21% 9% 11% 12% 10%
Dilip Buildcon 82 (30,432) (18,210) (68,983) (34,723) -37% -22% -84% -42% 36% 36%
Ashoka Buildcon 27 18,704 11,090 12,562 7,241 69% 41% 46% 27% 13% 11%
GR Infra 169 20,036 15,025 227 (644) 12% 9% 0% 0% 9% 9%
HG Infra 41 7,737 6,599 (705) 718 19% 16% -2% 2% 17% 15%
Sadbhav Engineering 7 4,562 4,495 (4,533) 2,452 62% 61% -61% 33% 39% 43%
PSP Projects 19 2,946 1,634 99 (540) 16% 9% 1% -3% 4% 4%
Source: Systematix Research, Company, Bloomberg
Exhibit 12: L&T – Core E&C value has declined in the past 2.5 Exhibit 13: NJCC – worst seems behind as the company is on track
years, while tech businesses have created value for its shareholders to negligible debt by FY24E
(Rs/share)
30,000 1.2
2,500
25,000 1.0
2,000
1,500 20,000 0.8
1,000 15,000 0.6

500
10,000 0.4
0
5,000 0.2
-500
Mar-19 Mar-20 Mar-21 Dec-21
- 0.0
Value of core E&C and others L&T Infotech
FY17
FY13
FY14
FY15
FY16
FY18
FY19
FY20
FY21
FY22E
FY23E
FY24E
Mindtree LTTS
L&T Finance Holdco discount
L&T share price Core E&C value as of Mar-19 Net debt (Rs bn) Net D/E (x) RHS
Source: Company, Systematix Research, Bloomberg Source: Company, Systematix Research
Exhibit 14: KNRC is amongst the few to consistently generate Exhibit 15: …with PNCL being the other
positive OCF/FCF over the past 10 years
(Rs bn) (Rs bn)
6 8
5 6
4
4
3
2 2
1
0
0
-1 -2
-2
-4
FY21E
FY22E
FY23E
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY14
FY22E
FY23E
FY13
FY15
FY16
FY17
FY18
FY19
FY20
OCF - Net Interest expense FCF - Net Interest expense OCF - Net Interest Expense FCF - Net Interest Expense
Source: Company, Systematix Research, Bloomberg Source: Company Systematix Research
Exhibit 16: Valuation comparison

Mkt Target ROE (%) P/E (x) Dividend Yield (%) FY21-23E CAGR
CMP
Company Cap Rating Price
(Rs) FY22E FY23E FY22E FY23E FY22E FY23E Sales EBITDA
(Rs bn) (Rs)
KNR Construction 295 83 BUY 356 18.7 19.1 21.6 17.6 0.2 0.3 23% 23%
Larsen & Toubro 1,866 2,621 BUY 2,287 12.5 14.9 26.3 19.9 1.7 2.3 18% 24%
PNC Infratech 289 74 BUY 347 13.3 13.9 18.0 15.2 0.4 0.7 14% 15%
NCC 75 46 BUY 132 7.0 8.9 11.8 8.7 1.7 2.3 21% 20%
Source: Bloomberg, Systematix Research
Infrastructure capex: Need of the hour for growth revival

Infrastructure is a growth enabler and critical for boosting the growth prospects
India has set a target of achieving USD 5trn in GDP by 2025. Supply-side reforms and
investment in infrastructure are vital in achieving this target and increasing India’s
competitiveness in the global economy.
India’s manufacturing competitiveness also critically depends on infrastructure
development as it boosts the short-and-long-term potential rate of GDP growth,
while at the same time it helps absorb labour, thereby boosting employment and
income generation in the economy and further spurring domestic demand. Improved
infrastructure capacities also create efficiency gains through advanced logistics and
networks, which enhance the economy’s competitiveness. This can help kick in a
virtuous cycle of higher investments, growth and employment generation, which is
much needed after the COVID-19-induced pause.
Historically, spending on transport, energy and water & irrigation has contributed to
more than 80% of the infrastructure spending in the country. While these remain the
key, future spending must consider the changing demographics and environment of
the country. From housing provision to water and sanitation services & to digital and
transportation needs, there is a compelling demand for increased and improved
delivery across the entire infrastructure spectrum, which will ensure economic
growth and improve ease of living as well as competitiveness across sectors.
Historical trend in infrastructure investment in India
Infrastructure investment in India over FY08-17 was estimated at ~Rs 60trn, with the
11th Five Year Plan period (FYP; FY08-12) accounting for Rs 24trn and the 12th FYP
(FY13-17) accounting for Rs 36trn. However, as a share of GDP, infrastructure
spending fell to ~5.8% during the 12th FYP from ~7% during the 11th FYP.
In comparison, during FY18 and FY19, India’s infrastructure investment was ~Rs
10.2trn and ~Rs 10trn, respectively. During the same period, infrastructure
investment was predominantly made by the public sector (i.e., centre and state
governments with a share of ~70%), while the share of the private sector was ~30%
(the share of the private sector during the last two years was ~25%).
Exhibit 17: India's year-wise investment trend in infrastructure Exhibit 18: Sectoral share of India’s infrastructure investment
during FY13-19
(Rs tn)
0.7 1.4
12 10.7 0.6
10.3 10.0 5.2 Power
10 9.2 9.3
8.5 2.6 Roads and bridges
2.5 2.4 17.7
8 7.0 2.6 2.5 Urban
6.3 5.6
3.0
6 5.3 Telecommunication
2.3 4.9 4.1
2.0 4.8
1.5 4.3 4.3 Railways
4 3.5
2.7 3.0 Irrigation
2.4 6.9
2 3.5
2.5 3.0 3.2 Airports
1.6 1.7 2.0 2.3
1.4
0 Ports
FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E FY21E
10.3 Others
Centre State Private Total 8.7
Source: Report of the Task Force - Department of Economic Affairs, Ministry of Finance, GoI, Systematix Research
Exhibit 19: Infrastructure Vision 2025 by the GoI is aspirational and meeting this would call for substantial investment
Goals Strategy
Affordable & clean energy • 24x7 power supply for all - reliable transmission and distribution infrastructure.
• 100% population coverage for telecom and high-quality broadband services for socio-economic empowerment
Digital services access for all of every citizen.
• Digital payments and e-governance infrastructure for delivery of banking and public services.
• Enhanced road connectivity to remotest areas with extensive charging and on-road traction infrastructure for e-
vehicles.
• World-class stations and fully integrated rail network with connectivity to remote regions & focus on safety.
• Airport and related infrastructure to enable international and regional connectivity to achieve passenger and
Convenient & efficient
cargo traffic, in line with the National Civil Aviation Policy 2016 vision.
transportation and logistics
• Ports and waterways infrastructure focused on reducing logistics time and cost for foreign and domestic trade as
per the Sagarmala National Perspective Plan 2016.
• Urban mobility-mass rapid transit system (MRTS) and bus connectivity within 800m homes in more than 50
cities.
• Housing for All by 2022 – Pradhan Mantri Awas Yojana; negligible slum population.
Housing and water supply
• All households to have piped water supply, meeting national standards by 2024.
• Increased irrigation and micro–irrigation coverage.
Doubling farmers’ income • Integrated agri-logistics systems from farm-gate to end consumers – storage, processing and packing,
transportation, market and digital infrastructure for agriculture produce.
• World-class educational institutes for teaching and research, technology-driven learning meeting gross
Quality education
enrolment ratio target as per draft National Education Policy 2019.
• Superior accessible primary, secondary and tertiary healthcare infrastructure facilities across India to meet the
National Health Policy 2017 goals.
Good health & well-being
• Medical, para-medical education infrastructure meeting manpower needs by 2025 as per Indian Public
Healthcare Standards.
• Waste-water collection, treatment/recycling to national standards in all towns across India.
Sustainable and smart cities
• Smart city infrastructure for mobility, entertainment, business, high-quality river-front and safety.
Disaster resilience • Design and construct public infrastructure to meet disaster resilience standards in infrastructure.
• Use data generated by infrastructure services in enhancing quality, safety and efficiency of operation and
Leverage technology maintenance of infrastructure services.
for public good • Leverage technology to enhance cost efficiency, access, durability and resilience of public infrastructure
projects.
Infrastructure deficit in India directly impacts India’s global competitiveness

India’s ambition of sustaining its relatively high growth depends on one important
factor: infrastructure. The country, however, is plagued with weak infrastructure,
incapable of meeting the needs of a growing economy and growing population.
Infrastructure bottleneck is a primary constraint to improving its global
competitiveness, as measured by the World Economic Forum’s Global
Competitiveness Index.
Exhibit 20: India ranks poorly on the Global Competitiveness Index in Infrastructure
Parameter India’s rank
Transport infrastructure 28
Road connectivity 72
Quality of road infrastructure 48
Railroad density 39
Efficiency of train services 30
Airport connectivity 4
Efficiency of air transport services 59
Liner shipping connectivity 25
Efficiency of seaport services 49
Utility infrastructure 103
Electricity access 105
Electricity supply quality 108
Exposure to unsafe drinking water 106
Reliability of water supply 96
Source: Report of the Task Force - Department of Economic Affairs, Ministry of Finance, GoI, Systematix
Research
Exhibit 21: Infrastructure investment over FY13-19 has remained rangebound at ~6% of GDP
Sector FY13 FY14 FY15 FY16 FY17 FY18P FY19P Total
Power 2.3 2.5 2.5 2.7 3.2 2.6 1.9 17.7
Roads and bridges 1 1.1 1.2 1.4 1.8 1.9 1.9 10.3
Urban 0.7 0.9 1.1 1.2 1.3 1.7 1.8 8.7
Telecom 0.4 0.7 1.1 1.6 1.1 1 1 6.9
Railways 0.4 0.4 0.4 0.8 0.9 1.3 1.4 5.6
Irrigation 0.5 0.5 0.5 0.7 0.8 1 1.2 5.2
Airports 0 0.1 0.1 0.1 0.1 0.1 0.1 0.6
Ports 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.7
Others 0.1 0.1 0 0.1 0.1 0.5 0.5 1.4
Total infrastructure investments (A) 5.3 6.3 7 8.5 9.2 10.2 10 56.7
Nominal GDP (B) 99.4 112.3 124.7 137.6 153.6 171 190.1 988.7
Infra investment as % of Nominal GDP (A / B) 5.50% 5.60% 5.60% 6.20% 6.00% 6.00% 5.30% 5.70%
National Infrastructure Pipeline comes to the fore with plans

of over Rs 100trn in infrastructure capex over FY20-25
The Finance Ministry in mid-2020 revealed an online dashboard showcasing 6,633
projects worth Rs 128trn under the National Infrastructure Pipeline (NIP). Since then,
the dashboard has kept updating to reflect new additions/deletions, with broad
sector-level data remaining mostly the same. As of Dec’21, the revised number of
projects stands at 9,078 for a total value of Rs 111trn. Despite an appreciable
attempt towards transparency, the dashboard lacks easy access and requires
painstaking efforts to collate and analyze project information.
We took the plunge and collated details of the Top-1,000 projects (~80% by value) to
identify opportunities within the various sub-segments. As per the data, <20% of the
overall pipeline is close to being tender-ready. We see opportunities for regional
road EPC companies and metro rail contractors in the near term, while water,
railways and affordable housing segments offer longer-term opportunities.
Key highlights from our analysis of NIP projects
• Out of Rs 104trn of projects data that we collated (remaining cost outlay of ~Rs
95trn), ~Rs 37trn is in the development stage and ~20% of the overall pipeline is
at the tender-ready stage, with the remaining in either the idea/nascent stage or
already ordered out.
• Key transport segments with a DPR (detailed project report) approved pipeline: 1)
roads with land-ready projects in Tamil Nadu, Andhra Pradesh and Madhya
Pradesh even as the overall DPR-approved pipeline is just 0.5x of FY20 capex and
2) metro rail with Rs 2.2trn of DPR-approved pipeline.
• Amongst other segments, longer-term opportunities exist in water, railways and
affordable housing. However, most of the larger core schemes such as Jal Jeevan
Mission, river inter-linking and new DFC corridors suffer from a top-down
enumeration of opportunities without concrete plans and project details.
• Energy has the largest share in development-stage projects but consists of
thermal and renewable power generation projects that may face viability hurdles.
• Funding remains the biggest challenge, even more than execution and land
acquisition.
• While the NIP provides visibility for the future pipeline, we believe ~60% of this
capex is feasible assuming business-as-usual scenario.
• Our estimate of Rs 73.17trn of capex under the NIP does not assume any adverse
impact from the further worsening of the macroeconomic situation, leading to a
further cutback of infrastructure spending by the centre or states. At the same
time, we are not assuming any major policy change or infrastructure push by the
government by foregoing the fiscal deficit targets and risking a sovereign rating
downgrade.
• If NIP is considered the potential demand pipeline, we estimate ~Rs 60trn of
infrastructure investment over FY22-25 against Rs 45trn over FY15-19.
• If government funding is considered the supply side bottleneck, the likely
infrastructure investment will be Rs 35trn over FY22-25 vs. Rs 26trn over FY15-19.
• The reality will be somewhere in between, subject to the government monetizing
some of its existing infrastructure/other assets (National Monetization Pipeline).
Exhibit 22: Sector-wise investment plan as per NIP; we estimate ~60% achievement
Value of projects Historical trend Future run-rate
(Rs bn)
NIP Our est FY16 FY17 FY18 FY19 FY20P FY21E FY22E NIP Our est
Transport 54,677 39,778 10,415 7,264
Roads 28,300 20,386 1,552 1,920 2,115 2,585 2,769 2,607 2,912 5,695 3,717
Railways, of which 15,001 14,908 935 1,099 1,020 1,334 1,480 1,608 2,099 2,824 2,800
Railway Tracks 11,900
Railway Rolling Stock 3,010
Rail Terminal Infra 91
Urban public Transport 8,890 3,962 217 300 312 358 396 215 303 1,482 660
Ports 635 168 106 28
Airports Infrastructure 1,600 239 267 40
Inland Waterways 232 100 39 17
Shipyards 19 15 3 3
Logistics 2,741 1,919 457 320
Energy 28,558 14,237 4,760 2,373
Electricity Distribution 3,780 2,646 630 441
Generation (Non Renewable) 9,300 1,860 1,550 310
Electricity Transmission 3,960 2,772 660 462
Generation (Renewable) 11,030 6,618 1,838 1,103
Oil/ Gas/ LNG storage 488 341 81 57
Water & Sanitation 21,514 8,131 4,803 1,480
Irrigation 12,890 5,378 686 834 826 929 929 697 767 2,857 979
WTP 7,740 2,134 188 228 287 320 336 252 290 1,800 398
Sewage collection 645 452 108 75
Solid Waste Management 129 90 21 15
Storm Water Drainage 110 77 18 13
Communications 980 882 163 147
Social Infrastructure 13,956 9,769 2,326 1,628
Commercial Infrastructure 5,768 3,461 961 577
Grand Total 128,194 78,178 23,885 13,789
Source: Systematix Research, India Investment Grid
Exhibit 23: Transport, energy and water are the largest sectors Exhibit 24: Projects comprising 80% of those listed under NIP
proposed under NIP followed by affordable housing (social infra)
5,768 NIP split by sectors (Rs bn) 4,038 NIP split as per identified projects (Rs bn)
13,956 11,605
Transport
Transport
980 891
Logistics
Logistics
40,678
54,677 Energy
Energy
21,514 17,292
Water & Sanitation Water & Sanitation
Communications Communications
Social Infrastructure Social Infrastructure
2,094 Commercial
28,558 2,741 Commercial
26,997 Infrastructure
Infrastructure
Source: Systematix Research, India Investment Grid Source: Systematix Research, India Investment Grid
Exhibit 25: Roads, railways and metros constitute the bulk of the Exhibit 26: …while energy is dominated by renewables, thermal
opportunity in the transport segment (Rs bn)… generation and T&D capex in that order (Rs bn)
3,010 232
1,600 488
3,780
635 Electricity Distribution
Roads
8,890 28,300 Railway Tracks Electricity Generation

Urban public Transport 11,030 (Non Renewable)
Ports Electricity Transmission
Airports
9,300 Electricity Generation
Railway Rolling Stock (Renewable)
Inland Waterways Oil/ Gas/ LNG storage

11,900
3,960
Exhibit 27: Irrigation (including river linking) and water supply Exhibit 28: Social infrastructure capex is largely driven by
& treatment drive the water & sanitation segment capex (Rs bn) affordable housing and some amount of education/medical infra
(Rs bn)
645 129 106

2,440
Irrigation
Education Infrastructure
7,740 WTP
1,840 Medical Infrastructure
Sewage collection Affordable Housing
12,890 Sports Infrastructure
Solid Waste
Management 9,570
Transport is the largest driver of infrastructure spending but

more needed
Transport is the largest segment, with 43% of all projects by value as a share of the
total NIP capex plan. Almost 60% of the projects are proposed under the EPC
(engineering, construction, procurement) route, while 20% (mostly roads) come
under the Hybrid Annuity Model (HAM).
As per the NIP, Rs 54.7trn is likely to be spent in the transport segment over FY20-
25E. On an annualized basis, this would mean that the spending run-rate for some of
the key segments within transport such as roads, railways and urban public transport
will have to almost double to meet the targets. While our estimates are relatively
conservative, they still call for a more than 50% jump in spending during FY21-25E
over the previous five years.
Exhibit 29: We estimate 57% achievement of the transport sector projects under the NIP, but there is still a good opportunity in the
metros and railways space while the roads segment is likely to continue at the current pace
Value of projects Historical trend Future annual run-rate
(Rs bn) Systematix Systematix
NIP FY16 FY17 FY18 FY19EE FY20BE/EE NIP
est est
Transport 54,677 30,995 9,113 5,166
Roads 28,300 16,359 1,552 1,920 2,115 2,611 2,697 4,717 2,727
Railways, of which – 15,001 9,594 935 1,099 1,020 1,334 1,534 2,500 1,599
Railway Tracks 11,900
Railway Rolling Stock 3,010
Railway Terminal 91
Urban public Transport 8,890 3,962 217 300 312 404 465 1,482 660
Ports 635 265 106 44
Airports 1,600 700 267 117
Inland Waterways 232 100 39 17
Shipyards 19 15 3 3
Exhibit 30: However, most of the projects in the transport segment are in the implementation or conceptualization stage (Rs bn)
Urban Railway
Railway Inland
Stage Status Transport Roads public Ports Airports Rolling
Tracks Waterways
Transport Stock
Partially Commissioned 279 279
Notice to Proceed 11,786 3,484 2,287 3,402 7 183 2,423 -
Financial Closure
878 73 118 86 50 59 492 -
Implementation Achieved
Tender Awarded 1,202 1,049 - 81 18 - - 54
Tender Invited 1,080 - 1,080 - - - - -
Not Disclosed 3,770 3,621 43 48 47 - - 10
Idea Stage 13,811 6,954 4,504 1,875 15 445 15 4
Conceptualization
Not Disclosed 407 - 89 - 318 - - -
Design work 337 - 337
Tender Awarded 109 - 109 - - - -
Development DPR Approved 3,769 1,017 304 2,168 26 255 - -
DPR/Feasibility
2,508 2,157 98 - 123 102 - 28
Study in Progress
Not Disclosed 734 203 - - 10 384 - 137
Completed 7 7
Exhibit 31: Bulk of the new transport segment opportunities are planned under the
EPC/HAM route
(Rs bn)
30,000
25,000
While more EPC opportunities
are good from a sector 20,000
perspective, it also means 15,000
higher funding needs for the
government 10,000
5,000
0
EPC HAM PPP Not Disclosed
Roads Railway Tracks Urban public Transport
Ports Airports Railway Rolling Stock
Exhibit 32: Large projects in roads and railways either under implementation or in idea
stage
(Rs bn)
15,000
10,000
Roads and metros have a
reasonable DPR-approved 5,000
project pipeline; railways
projects largely in idea stage 0
Tender
Approved
Stage
Notice to
Awarded
Design
DPR/Feasibility
Concept
Awarded
Development
FC Achieved
Commissioned
Implementation
Invited
Proceed
Idea
work
Tender
Tender
NA -
DPR
Partly
NA -
Study
NA -
Roads Railway Tracks

Urban public Transport Ports
Airports and Aviation Infrastructure Railway Rolling Stock
Inland Waterways
The roads segment has witnessed the bulk of the action

India has the second-largest road network globally. Roads can be classified into –
national highways, expressways, state highways, major district roads and rural roads.
The total road network in India was ~5.9mn km as of Mar-19. Of this, national
highways and expressways comprised just 132,500 km, while state highways were at
156,694 km. Major district roads and rural roads accounted for the remaining 5.6mn
km. There is a need to further boost connectivity as national and state highways
constitute only 4.7% of the surfaced roads in India.
Exhibit 33: Infrastructure deficit in roads sector - Road connectivity Exhibit 34: …India fares poorly in connectivity and quality of roads
score (1-100) Quality of road infrastructure (Score: 1 – 7)
100.0
95.7 96.6 6
100 91.3 5.5 5.4
90 4.9
75.8 5 4.5 4.6
80
70 4
60
50 3
40
2
30
20 1
10
0 0
India USA China UK France India USA China UK France
Source: WEF Global Competitiveness Report, Transport Competitiveness Report
Exhibit 35: Trend in road network in India

(mn kms)
7 6.2
5.9 5.9
6 5.5 5.5
5.2
4.7
5
3 5.6 5.6 5.9

5.0 5.2 5.2
4.5
2
1
0.2 0.2 0.2 0.2 0.2 0.2 0.2
0 0.1 0.1 0.1 0.1 0.1 0.1 0.1
FY15 FY16 FY17 FY18 FY19 FY20 FY21
National Highways State Highways Other Roads Total Roads
Source: MoRTH annual reports
The sector itself has attracted significant investment over the past two decades. At
the start of the century, the sector pioneered several innovative public-private
partnership (PPP) models, which led to significant investments from private players.
Private sector participation, however, declined towards the end of the 12th Five Year
Plan owing to land acquisition and utility clearance hurdles, inadequate dispute
resolution mechanism and poor project preparation resulting in frequent change of
scope and aggressive bidding by developers.
This has led to a significant increase in direct allocation of central government funds
to the roads sector, as EPC and HAM models were preferred over BOT (build,
operate, transfer)-Toll by the industry in recent times. The share of roads sector
investment in the overall infrastructure investment was ~17% between FY13-17,
rising at a ~16% CAGR. The rate of construction of national highways has more than
doubled since FY15.
Exhibit 36: Roads sector investment and share in total infrastructure investment
(Rs tn)
2.5 25%
2.0 20%
1.5 15%
1.0 10%
0.5 5%
0.0 0%
FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E FY21E
Roads sector investment % share in total infra investment (RHS)
Source: Appraisal documents for five-year plans, CRIS estimates
Exhibit 37: Achievement targets set by MoRTH

(Kms) (Km/day)
18,000 40
16,000 35
14,000 30
12,000
25
10,000
20
8,000
15
6,000
4,000 10
2,000 5
0 0
Targeted Construction Achieved construction km per day (RHS)
Source: MoRTH annual reports
Exhibit 38: Total planned capex on roads by the centre over FY20-25
Capex over FY20 – FY25
Category No. of projects Length (km)
(Rs bn)
National highways 1,815 87,162 12,806
Expressways 5 2,142 1,017
Total 1,820 89,304 13,824
Source: Report of the Task Force - Department of Economic Affairs, Ministry of Finance, GoI
Exhibit 39: Total planned capital expenditure in roads over FY20-FY25
(Rs bn) FY20 FY21 FY22 FY23 FY24 FY25 Total
Centre 2,478 2,597 2,517 1,725 1,702 2,804 13,824
States 847 1,236 1,053 803 705 522 6,514
Total 3,326 3,833 3,570 2,528 2,408 3,327 20,338
Exhibit 40: Roads sector reform timeline
NHAI has been awarding more HAM projects than EPC

NHAI has actively awarded road projects over FY15-18 under both the EPC and HAM
routes. We expect the EPC share to increase as the industry’s capacity to absorb
more HAM projects seems restricted. As such, there are concerns that the NHAI may
again have to seek help from the government for funding.
Exhibit 41: FY18 and FY21 witnessed a significant rise in HAM projects versus EPC
(Kms)
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
EPC HAM BOT
Source: NHAI, Systematix Research
Exhibit 42: NHAI’s debt has ballooned while cess and toll revenue Exhibit 43: FY20-22 revenue projections unlikely to materialize,
have stagnated thereby necessitating recourse to budgetary support
(Rs bn) (x) (Rs bn)
4,500 12 500 60%
4,000 450
10 400 50%
3,500
350 40%
3,000 8
300
2,500 250 30%
6
2,000 200
150 20%
1,500 4
1,000 100 10%
2 50
500
0 0%
0 0
FY18
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY19
FY20P
FY21P
FY22E
FY13
FY21P
FY11
FY12
FY14
FY15
FY16
FY17
FY18
FY19
FY20P
FY22E
Cess and toll revenue
Debt Debt to Cess and Toll revenue (RHS) Cess and toll revenue as a share of NHAI annual funding (RHS)
Source: NHAI, Systematix Research Source: NHAI, Systematix Research
Exhibit 44: Interest outgo for NHAI has risen sharply and is now as high as 60% of cess
and toll revenue
(Rs bn)
300 70%
250 60%
50%
200
40%
150
30%
100
20%
50 10%
0 0%
FY19
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY20P
FY21P
FY22E
Interest and other expenses on bond
Interest as a share of Cess and Toll (RHS)
Source: Systematix Research
• Compared to an annual spend of Rs 2.5trn on roads in FY20, the total NIP roads
pipeline is ~Rs 28.3trn, of which ~10% was spent by Mar-19. Assuming another Rs
2.5trn was spent in FY20, about Rs 22.5trn worth of remaining pipeline is in roads,
or 9x FY20 spending, providing strong visibility from a pipeline perspective.
• Of the Rs 18trn worth of road projects we identified (66% of total), Rs 8trn is
already under implementation while Rs 7trn is in the concept stage, leaving only
~Rs 3.2trn in the development stage.
• Further, only about Rs 1trn worth of road projects have their DPR approved,
which is <50% of the FY20 spending. A strong DPR-approved pipeline is required
for road spending to pick up fast, which is currently lacking.
• We thus expect road capex to pick up only gradually from the current high levels,
due to weak orders in the recent past and a weak DPR-approved pipeline. In the
longer-term though, road capex can pick up due to an overall strong pipeline in
place, if land acquisition, DPR work and funding are done quickly.
• An analysis of the geographical mix of development-stage projects and land

acquisition progress suggests that most of the orders can happen in TN, AP and
MP in the near term.
• Longer term, AP, MH, UP, TN and Karnataka hold potential due to an overall large
pipeline in these states.
• For our analysis, we are not focusing on the Pradhan Mantri Gram Sadak Yojana
(PMGSY), which has an overall capital outlay of Rs 3.6trn (of which ~Rs 1.5trn is
not spent), as it primarily focuses on rural roads and does not benefit listed
players much.
Exhibit 45: Development-stage road projects – mostly in AP, J&K, Maharashtra, Gujarat,
Madhya Pradesh, UP and Karnataka – benefit players like PNCL, KNRC and Dilip
Buildcon (Rs bn)
(Rs bn)
2,500
2,000
PNCL, KNRC and Dilip Buildcon
to benefit as most DPR-ready 1,500
road projects are in their core
focus geographies 1,000
500
0
Karnataka
Kerala
West Bengal
Pradesh
Pradesh
Tamil Nadu
Telangana
Gujarat
Assam
Others
Maharashtra
Madhya
Jammu &
Pradesh
Andhra
Kashmir
Uttar
Conceptualization Development Implementation
Source: Systematix Institutional Research, India Investment Grid
Exhibit 46: For projects under development/concept stage, most land-ready projects
are in TN, AP and MP; Maharashtra and Karnataka are big opportunities but not land-
ready
(Rs bn)
Planned Road projects value split state-wise as per land acquired
1,600
1,400
KNRC and Dilip Buildcon to 1,200
benefit as most land-ready road 1,000
projects in TN, AP and MP 800
600
400
200
0
Bengal
Kerala
Karnataka
Others
Pradesh
Telangana
Jammu &
Assam
Maharashtra
Kashmir
West
Uttar
Land acquired - No Land acquired - Yes
Exhibit 47: States with a larger opportunity basket in roads have a fair mix of centre
and state-funded projects
(Rs bn)
2,500
2,000
1,500
AP and TN have higher state-
1,000
funded road projects coming
up, while MH and UP have a 500
fair mix of centre and state-
funded projects. 0
Kerala
Gujarat
Pradesh
Karnataka
Others
West Bengal
Pradesh
Tamil Nadu
Telangana
Assam
Maharashtra
Madhya
Jammu &
Pradesh
Andhra
Kashmir
Uttar
Centre States/UTs
Exhibit 48: EPC/HAM is the preferred route

(Rs bn)
2,500
2,000
1,500
1,000
500
Kerala
Gujarat
Karnataka
Others
Pradesh
Pradesh
Tamil Nadu
West Bengal
Telangana
Assam
Maharashtra
Madhya
Jammu &
Pradesh
Andhra
Kashmir
Uttar
EPC HAM Not Disclosed PPP
Key road projects in the NIP where ordering opportunity may come up
• Implementation stage:
➢ PMGSY (Rs 1.5trn unspent opportunity mostly relating to rural roads)
➢ Ganga Expressway (Rs 415bn; UP)
➢ Mukhya Mantri Gram Sadak Yojna, Gujarat (Rs 153bn opportunity mostly
relating to rural roads)
➢ Multiple road upgradation programs in Andhra Pradesh totaling over Rs
700bn
• Development/Conceptualization stage:
➢ Maharashtra/Karnataka border to Bengaluru road (HAM project worth Rs
312bn; land yet to be acquired)
➢ Amravati-Mydukur Road in AP (HAM project worth Rs 232bn; land yet to be
acquired)
➢ GVMC & VMC Road in AP (EPC project worth Rs 195bn; land acquired)
➢ Jharkhand/West Bengal border to Kolkata road (HAM project worth Rs
➢ Chennai-Trichy road in TN (HAM project worth Rs 145bn; land yet to be
acquired)
➢ Hyderabad to Telangana/Maharashtra border road (HAM project worth Rs
➢ Telangana/AP border to AP/Karnataka border road (HAM project worth Rs
➢ Dhule-Thane road in Maharashtra (HAM project worth Rs 127bn; land yet to
be acquired)
Railways has strong potential but needs to act fast

Even as the Indian Railways has been investing significantly to enhance the safety &
speed of trains, improve freight efficiency & passenger amenities and ensure better
connectivity, overall investments in the segment have remained subdued compared
to the power and road sectors. The investment trend in railways has picked pace
only since 2016 with the key focus areas being decongestion of over-utilized rail
network, construction of new lines, doubling, tripling, quadrupling of rail lines and
purchase of rolling stock such as wagons, locomotives and coaches.
To remain competitive vis-à-vis other transportation modes, there is an urgent need
to further upgrade and expand the railway infrastructure.
Between FY13-17, the share of the railways sector in the overall infrastructure
investment was ~8%, growing at a CAGR of ~23%. Historically, capital investment in
railways has been mainly from the government, with little private sector investment.
The gross revenue receipts of the Indian Railways have risen at a slow pace of ~6%
CAGR over FY14-18, while the operating ratio has been very high at 90-98% levels.
Higher operating ratio in the railways curtails the ability to make fresh investments
through internal accruals.
Freight traffic growth for Indian Railways has been impacted by high freight rates, a
decline in coal traffic for thermal power plants, slowdown in container traffic and low
volumes of cement traffic (together comprising 60-65% of rail freight). Freight
revenue is the major contributor to Indian Railways’ revenue with ~64% share, vis-à-
vis ~27% share of passenger revenue, and the rest coming from non-fare revenue
and indirect earnings.
Over 1954-2016, while overall freight loading grew ~13x and passenger kilometres
~16x, route kilometres rose only 23%. Of the 247 sections operated by Indian
Railways, 161 sections are running at 100% or above line capacity.
Due to low fares, passenger traffic uses two-thirds of the capacity but generates only
one-third of revenue. High freight tariff is thus getting out-priced in the market. As a
result, railway finances with over 98% operating ratio (operating cost/ operating
revenue) leave no surplus for capital investment.
Exhibit 49: Railways’ infrastructure investment and share in total Exhibit 50: …fueled by rising gross revenues and an improving
infrastructure investment was on an uptrend pre-COVID… operating ratio
(Rs tn) (Rs tn)
1.8 20% 2.0 100%
1.6 18% 1.8
98%
1.4 16% 1.6
14% 1.4 96%
1.2
12% 1.2 94%
1.0
10% 1.0
0.8 92%
8% 0.8
0.6 6% 0.6 90%
0.4 4% 0.4
0.2 88%
2% 0.2
0.0 0% 0.0 86%
FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E FY21E FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21E
Railways sector investment Share in total infra investment (RHS) Gross revenue receipts Operating ratio (RHS)
Source: Appraisal documents for five-year plans, CRIS estimates Source: Indian Railways Statistical Summary
Exhibit 51: Indian Railways is primarily dependent on freight traffic for its overall
revenues
(Rs bn)
2,000
1,800
1,600
1,400
1,226
1,200
1,115
1,135
1,069
1,020
1,031
1,000
916
1,174
800
600
400
511
507
486
463
443
424
365
125
200
0
FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21E
Passengers earnings Frieght earnings
Source: Indian Railways Statistical Summary
Exhibit 52: Route km for Indian Railways has been nearly stagnant for several years
despite high dependency on both freight and passenger traffic
(Kms)
69,000
68,442
68,500
67,960
68,000
67,368 67,420
67,500
67,000 66,687
66,500 66,030
66,000 65,808
65,500
65,000
64,500
64,000
Source: Indian Railways Statistical Summary
Exhibit 53: Infrastructure deficit in Indian Railways – Freight Exhibit 54: …passenger throughout on absolute basis as well as
throughput in India significantly lags… relative to peers
(bn tonne-kms) (bn passenger-
3,000 kms)
1,400
2,445 2,492
2,500 1,150
2,146 1,200
2,000 1,000
800 685
1,500
600
1,000
620 400
500 123
200 78
71 11
0 0
USA China Russia India Germany USA China Russia India Germany
Source: World Development Indicators-World Bank, IR Yearbook 2018 Source: World Development Indicators-World Bank, IR Yearbook 2018
Exhibit 55: Indian Railways reform timeline
• As compared to an annual spend of Rs 1.5trn on railways in FY20, the total NIP

pipeline in railways is about Rs 15trn, of which about Rs 1.15trn was already spent
by Mar-19. Assuming that another Rs 1.5trn was spent in FY20, about Rs 12.35trn
worth of remaining pipeline is in railways, or 8x of FY20 spending, thus providing
strong visibility at least from a pipeline perspective.
• Despite a promising pipeline, Indian Railways has among the lowest share of
projects in a tender-ready stage. It lacks an immediate development pipeline in
tracks/electrification segment since most of the large projects listed, such as the
new DFC corridors, are in the conceptual stage.
• Of the Rs 8.8trn worth of projects identified by us in railway tracks (74% of total),
43% is already under implementation while 52% is in the concept stage, leaving
very little in the development stage.
• We thus expect railway orders to remain subdued, due to the weak near-term
pipeline. Longer term, since most of the opportunities identified under railway
tracks relate to upcoming DFCs (dedicated freight corridor) such as North-South,
East-West, East Coast, we believe ordering will remain muted. Other key
opportunities in this space relate to high-speed rail (Mumbai-Ahmedabad), a few
rail corridor upgradation projects & Bengaluru suburban line upgradation project.
Exhibit 56: Year-wise planned capital expenditure in railways over FY20 to FY25
Centre 1,325 2,608 3,075 2,720 2,197 1,663 13,588
State
9 17 13 18 15 16 87
governments
Total 1,334 2,625 3,088 2,738 2,212 1,679 13,676
Exhibit 57: Segment-wise total planned capex on railways by the centre over FY20-25
Capex over FY20–FY25
Category No. of projects
(Rs bn)
New lines/gauge conversion 259 4,401
Capacity augmentation 266 2,480
Dedicated Freight Corridor 7 1,662
Rolling stock 31 2,755
High-speed rail 2 1,106
Others 159 1,184
Total 724 13,588
Exhibit 58: Most of the proposed projects in railway tracks are either in the implementation or concept stage, where the DFC is the
single largest focus; new DFC projects are all in the concept stage and will take more than a decade to show results
Total Spent Proposed Mode of Project Project
(Rs bn) Current Status Completion
Project Cost till Mar-19 Capital Outlay Implementation Status Type
North South DFC Conceptualization NA 1,090 - 300 Not Disclosed Idea Stage Track
Mumbai-Ahmedabad
Implementation Dec-23 1,080 24 1,060 EPC Tender Invited Track
High Speed Rail
East West DFC Conceptualization Mar-28 1,060 - 390 EPC Idea Stage Track
Signaling System
Conceptualization Apr-30 779 - 427 EPC Idea Stage Signaling
Modernization
Notice to
JNPT-Rewari WDFC Implementation Dec-21 609 283 327 EPC Track
Proceed
East Coast DFC Conceptualization Mar-28 490 - 170 EPC Idea Stage Track
Construction of
Conceptualization Dec-22 456 - 455 EPC Idea Stage Track
ROBs/RUBs on GQ/GD
EDFC Ludhiana- Notice to
Implementation Dec-21 337 202 135 EPC Track
Sonnagar Proceed
Udahmpur-Baramulla Partially
Implementation Jun-22 279 180 99 EPC Track
via Srinagar Rail Link Commissioned
Bangalore Suburban
Line Capacity Conceptualization Mar-25 186 - 186 PPP Idea Stage Track
Upgradation
Exhibit 59: Out of Rs 8.8trn opportunity, only Rs 0.4trn is in the development stage, split between new tracks and upgrades; signalling
that the opportunity is entirely in the concept stage
(Rs bn) Signalling Technology Track Grand Total
New Track - - 7,595 7,595
Conceptualization - - 3,814 3,814
Development - - 267 267
Implementation - - 3,513 3,513
Upgradation 779 63 365 1,208
Conceptualization 779 - - 779
Development - - 135 135
Implementation - 63 230 294
Grand Total 779 63 7,960 8,802
Ports and Airports

• Ports offer a small opportunity of just Rs 635bn, of which we have identified 98%
of the projects by value.
• Unfortunately, of the Rs 621bn worth of projects we identified in this space, only
25% is in the development stage.
• Key projects in the development stage are Vadhvan Port, Transhipment Port at
South Bay, Andaman, Machilipatnam Deep Water Port, Prakasam Ramayapatnam
Port, Bhavanapadu Greenfield Port and JNPT Terminal 4 - Phase 2.
• Airports offer a reasonable opportunity pipeline of about Rs 1.6trn as per NIP, of
which we have identified 89% of the projects by value.
• Of the Rs 1.43trn worth of projects we identified in this space, a good 50% is in
the development stage but post COVID-19-related travel disruption and potential
delay in normal air travel resumption, we fear there may not be an urgency in the
development or expansion of airports.
• Key projects in the development stage are Pune, Navi Mumbai, Bengaluru Airport
Expansion, Jewar Airport, Mopa, Bhogapuram and Nagpur upgrade.
Exhibit 60: Navi Mumbai, Pune and Bengaluru are the key airport opportunities lined up in PPP; bunch of new projects planned in TN
EPC PPP
(Rs bn) Capacity Capacity Grand Total
New Unit R&M New Unit
Expansion Expansion
Andaman & Nicobar - 50 - - - 50
Andhra Pradesh - - - - 30 30
Assam - 11 - - - 11
Bihar - 10 - - - 10
Delhi 98 - - - - 98
Goa - - - - 30 30
Gujarat - 48 - - - 48
Haryana - 16 - - - 16
Karnataka - - - 162 - 162
Lakshadweep - 15 - - - 15
Maharashtra - - - - 369 369
Odisha - 9 - - - 9
Rajasthan - 121 - - - 121
Tamil Nadu 60 180 50 - - 290
Telangana - - - 59 - 59
Uttar Pradesh - 23 - - 86 110
Grand Total 158 484 50 221 516 1,429
Source: India Investment Grid, Systematix Research
Urban Infrastructure
Close to one-third of India’s population resides in urban areas, which could increase
to 50% in the next two decades. Historically, investments in the urban sector have
been close to 1% of the GDP.
While the urban population in India increased rapidly, there was no commensurate
supply of quality basic urban services. Between FY13-FY17, the share of urban sector
investment in overall infrastructure investment was ~14%.
In recent years, the importance of urban infrastructure has grown owing to its link
with economic growth, poverty reduction and quality of life. However, the lack of
funds at the urban local body level has generally constrained development in this
sector.
Investments in the urban sector have traditionally been undertaken by public sector
entities through budgetary allocations until recently, when some projects were also
undertaken through the private sector route.
There has been a steep rise in state investments from FY13 due to the launch of
flagship schemes such as Smart Cities, Atal Mission for Rejuvenation and Urban
Transformation (AMRUT), Heritage City Development and Augmentation Yojana
(HRIDAY), and Swachh Bharat Mission.
In recent years, the importance of housing infrastructure has also grown due to its
link with economic growth, poverty reduction and quality of life. To achieve the long-
term goal of Housing for All by 2022, the Government of India launched Pradhan
Mantri Awas Yojana (PMAY) in June 2015.
PMAY envisaged construction of ~11.2mn affordable houses in the urban areas and
~19.5mn affordable houses in the rural areas. Over FY16-9MFY20, a cumulative
investment of Rs 1.51trn has been made under PMAY (Urban).
Exhibit 61: India's rising urbanization trend calls for massive infrastructure upgrade
(bn)
1.6 45%
1.4 40%
1.2 35%
30%
1.0
25%
0.8
20%
0.6
15%
0.4 10%
0.2 5%
0.0 0%
1991 2001 2011 2030P
Total population Urbanization (RHS)
Source: CRIS estimates, Mckinsey Global Institute, Report of the Task Force - Department of Economic Affairs,
Ministry of Finance, GoI, Systematix Research
Exhibit 62: Segment-wise urban infrastructure capex plan by the centre over FY20-25
(Rs bn) No of projects Capex over FY20-25
Affordable Housing 98 5,407
Urban Transport / MRTS 50 5,734
Street Lighting / Solid Waste Management (Smart City Mission) 809 1,315
Water Supply and Sanitation / Green Parks / Sewage Treatment Plant (AMRUT) 405 474
Water supply, rejuvenation of water bodies, waste water collection and treatment (Jal Jeevan Mission) - 2,795
Total 1,362 15,724
Exhibit 63: Year-wise urban infrastructure capex plan over FY20-25

Centre 2,717 4,214 3,621 1,946 1,838 1,388 15,724
States 265 408 420 403 334 211 3,469
Overall Total 2,982 4,622 4,041 2,349 2,172 1,599 19,193
Exhibit 64: Urban sector reforms timeline
Urban Public Transport

• Within urban infrastructure, the urban public transport segment is the largest,
with several metro projects planned across key cities pan-India and few public
transit/integrated transport hub opportunities.
• Of the Rs 8.1trn worth of projects we identified in this space (91% of total), 32% is
in the development stage and 45% in the implementation stage, while most of
the projects are planned under the EPC mode.
• Interestingly, as much as Rs 2.2trn worth of projects have their DPR approved,
thus paving the way for a strong tender pipeline over the near to medium term.
• Key metro rail projects where DPR is approved are Chennai Phase II, Delhi-
Gurugram SNB NCRTC, Navghar-Balavali Multi Modal Corridor in Maharashtra,
Thane, Delhi Phase-IV, Bangalore Phase-3, Vijayawada, Hinjewadi-Shivajinagar in
Pune, Visakhapatnam, Nagpur Phase II and Bangalore Phase 2A.
Exhibit 65: Metro projects are the most-ready from an ordering Exhibit 66: Most metro projects are on the EPC mode
perspective
(Rs bn) (Rs bn)
8,000 8,000
6,000 6,000
4,000 4,000
2,000 2,000
0 0
Metro
Metro
Additonal Suburban
Traffic Infra
Additonal Suburban
Transport Hub
Transport Hub
Transport Hub
Transport Hub
Traffic Infra
Bus Terminal/Infra
Bus Terminal/Infra
EMU Procurement
EMU Procurement
Intergrated
Intergrated
Integrated
Integrated
Rail Corridors &

Rail Corridors &
Road/
Road/
Conceptualization Development Implementation EPC HAM Not Disclosed PPP
Exhibit 67: Rs 0.8trn worth of tender-ready metro projects await with a reasonable mix
of state and external funding
(Rs bn)
3,500
3,000
2,500
2,000
1,500
1,000
500
0
Design DPR Financial Idea Stage Not Notice to Tender
work Approved Closure Disclosed Proceed Awarded
Achieved
Centre State Debt Internal Accruals External PPP VGF/
Aid Grant
Water segment has been the current government’s focus area

As of Mar-17, while 96% of the urban population in India had access to basic drinking
water services, only 56% of the urban population had access to safely managed
drinking water services.
The National Rural Drinking Water Programme (NRDWP) was initiated in 2009 to
assist states in providing adequate and safe drinking water to the rural population.
The scheme envisaged funding for components such as coverage of habitations,
quality of water provided and O&M of projects etc., with a centre-state fund sharing
pattern of 90:10 for the northeast Himalayan states and 50:50 for all remaining
states.
As of July-19, 1.39mn habitations were fully covered, while 269,465 habitations were
partially covered under the NRDWP programme, making up ~97% of the total rural
households. However, only 18% of the households had access to piped water supply
out of this.
In 2019, the GoI restructured the ongoing NRDWP, which was subsumed into the Jal
Jeevan Mission (JJM) to provide functional household tap connection (FHTC) to every
rural household, i.e. Har Ghar Nal Se Jal, by 2024. The estimated project cost for the
mission is Rs 3.6trn, through which around 146mn rural households will be provided
with FHTCs. The funding pattern for the JJM scheme between centre and state is
90:10 for Himalayan and northeastern, 100:0 for Union Territories and 50:50 for the
rest of the states.
JJM aims to improve the quality of life of the rural population and assist in ensuring
open defecation free (ODF) sustainability. In the rural areas, this will also help
generate employment and boost the economy.
Exhibit 68: Access to basic drinking water (as a % of rural Exhibit 69: Access to safely managed drinking water
population)
100% 100% 99%

97% 97% 100%
100% 91%
90% 90% 83%
81%
80% 80%
70% 70% 61%
60% 56% 53%
60%
50% 50%
40% 40%
30% 30%
20% 20%
10% 10%
0% 0%
India US Bangladesh UK Australia World India Iran Bangladesh Israel World
Source: World Bank Data (2017) Source: World Bank Data (2017)
Exhibit 70: Expenditure under NRDWP Exhibit 71: Rural households with piped water supply (% of total)
(Rs bn)
50%
45%
120 110 45%
97 100
92
40%
100
35%
80 70 30%
60 25%
60 55
44 20% 17% 18%
16%
13% 14%
40 15%
10%
20
5%
0 0%
FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21RE FY15 FY16 FY17 FY18 FY19 Dec-21
Source: NRDWP website Source: NRDWP website
Exhibit 72: Urban population’s access to drinking water services
120%
95% 96%
100%
80%
56%
60% 49%
40%
20%
0%
People using at least basic drinking People using safely managed drinking
water services, urban water services (% of urban population)
(% of urban population)
FY14 FY17
Source: World Bank
Exhibit 73: Urban population using safely managed drinking water (% of population)
(% of
population)
100 92 89 92 90 92 90 92 91
90 83 83 82 82
80
70 61 61 61 61
54 56
60 49 51
50
40
30
20
10
0
2014 2015 2016 2017
India China Sri Lanka Philippines South Africa
Source: World Bank
Water & sanitation makeup over 17% of NIP projects by value and is the third-largest
segment after transport and energy.
• Within water & sanitation, irrigation is the largest segment with planned spending
of Rs 12.89trn. Almost Rs 5trn of the irrigation projects are already under
implementation (with 50% of project cost already spent), while many remaining
projects are in the conceptual stage.
• Water treatment projects is the second largest area with planned spending of Rs
7.74trn. Almost the entire spending here is dominated by the pet scheme Jal
Jeevan Mission where work is already under implementation/development.
• As compared to capital spending of ~Rs 0.35trn in FY20 on water supply projects,
the total NIP pipeline in water treatment projects (WTP) is about Rs 7.74tn, of
which almost the entire amount was yet to be incurred as of Mar-19.
• Since then, we have seen a fair amount of progress relating to Jal Jeevan Mission
projects in the country but assume overall spending to be in-line with FY20 levels.
Assuming that another Rs 0.7trn was spent over FY20-21, about Rs 7trn worth of
remaining pipeline is in WTP, or 20x of FY20 spending, thus providing strong
visibility at least from a pipeline perspective.
• Despite the ambitious pipeline in the WTP segment, the bulk is through just two
different schemes of Jal Jeevan Mission (JJM) – Rural and Urban. JJM-Rural is the
priority area for the Government; JJM-Urban may be taken up later.
Exhibit 74: Irrigation and water supply (WTP) - key segments Exhibit 75: Water segment opportunity segregated as per
where spending is planned remaining identified capital outlay
(Rs bn) (Rs bn)
14,000 Water & Sanitation
8,000
12,000 7,000
6,000
10,000
5,000
8,000
4,000
6,000 3,000
4,000 2,000
1,000
2,000
0
0 Irrigation WTP Sewage Solid Waste
Irrigation WTP Sewage Solid Waste Storm Water collection Management
collection Management Drainage
System Implementation Conceptualization Development
Exhibit 76: Almost 83% of Rs 7.7trn spending on water treatment projects outlined for
the Jal Jeevan mission; much of the remaining spending is for piped water supply
planned by individual states and may merge with JJM eventually
17%
JJM Rural Implementation

Jal Jeevan Mission is a pan- Project
India project; most of the larger 47% Jal Jeevan Mission
EPC players have said that JJM Implementation Project
projects tend to be small and
Others
are not a focus area for them.
36%
Irrigation
Investment in the irrigation sector is critical as it directly impacts agriculture and the
rural economy in India. Over FY13-17, the irrigation sector investment in the overall
infrastructure investment was ~9%, having grown at a ~5% CAGR. Investments in
irrigation are mainly driven by respective state governments.
The overall net irrigated area (NIA) in India has barely increased between FY15 and
FY19 (CAGR of ~2%); in comparison, the area under micro-irrigation grew at a ~10%
CAGR during the same period, owing to the governmen’ts continued focus in the
form of targeted, centrally-sponsored schemes and initiatives. However, the share of
sprinkler irrigation declined from 56% to 53% during this period, with a
commensurate increase in the share of drip irrigation.
Agriculture accounts for 80% of the current water consumption. Of the country's
140mn ha of the net sown area, net irrigated area is about 68mn ha and the
remaining 72mn ha is rain-fed. Of the net irrigated area, about 40% is irrigated
through canal systems and 60% through groundwater. Groundwater is being
overexploited in large areas of the country. With declining per capita water
availability, over-exploitation and inefficiencies cause alarm.
Exhibit 77: Irrigation sector investment and share in total Exhibit 78: Net irrigated area in India has barely increased
infrastructure investment over FY15-19
(Rs tn) (mn ha)
1.0 10% 70 60%
0.9 9%
0.8 8% 50%
65
0.7 7%
40%
0.6 6%
0.5 5% 60 30%
0.4 4%
0.3 3% 20%
55
0.2 2%
10%
0.1 1%
0.0 0% 50 0%
FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E FY21E FY15 FY16 FY17 FY18 FY19 Feb-21
Irrigation sector investment Share in total infra investment (RHS) Net irrigated area (NIA) Irrigation coverage (RHS)
Source: Appraisal documents for five-year plans, CRIS estimates Source: Ministry of Agriculture Annual Reports
Exhibit 79: Micro-irrigation in India has grown at an 8%+ CAGR Exhibit 80: …led by drip irrigation
over FY15-21…
(mn ha) (% share)
14 20% 100%
90%
12
80%
15% 56% 55% 54% 53% 53% 53%
10 70%
60%
8
10% 50%
6 40%
4 30%
5% 20% 44% 45% 46% 47% 47% 47%
2 10%
0 0% 0%
FY15 FY16 FY17 FY18 FY19 Feb-21 FY15 FY16 FY17 FY18 FY19 Feb-21
Micro Micro as a % of total NIA (RHS) Drip Irrigation Sprinkler Irrigation
Source: Pradhan Mantri Krishi Sinchai Yojana Source: Pradhan Mantri Krishi Sinchai Yojana
Exhibit 81: Rain-fed agriculture dominates in India despite low Exhibit 82: Concerns of water scarcity rising as per capita water
irrigation efficiency availability is declining due to groundwater over-exploitation
(tonnes per ha) (cu m)
52% 3.0 6,000
5,177
51% 2.5 5,000
51%
2.0 4,000
50%
1.5
50% 3,000
1.0
49% 2,000 1,508 1,465
49% 0.5 1,235
1,000
48% 0.0
Irrigated Area Rainfed Area
0
% of total agricultural land Mean productivity (RHS) 1951 2014 2025(P) 2050(P)
Source: ICAR, PIB Source: ICAR, PIB
Exhibit 83: Segment-wise break-up of irrigation capex planned by the centre

Capex over FY20-FY25
Category No of projects
(Rs bn)
SPR, ISBIG, CADWM 47 1,264
NWDA 4 1,027
NMCG, NRCD 44 201
Total 95 2,492
Exhibit 84: Year-wise break-up of total irrigation capex planned over FY20-25
Line ministry 398 618 541 454 284 197 2,492
States 721 1,386 1,219 929 875 516 6,453
Overall total 1,145 2,006 1,757 1,374 1,153 705 8,945
• Compared to a spend of ~Rs 1trn on irrigation projects in FY20, the total NIP
pipeline in the irrigation sector is about Rs 12.89trn, of which about 20% was
already spent by Mar-19. Assuming that another Rs 2trn was spent over FY20-21,
about Rs 8.4trn worth of remaining pipeline is in irrigation, or 8x of FY20
spending, thus providing strong visibility at least from a pipeline perspective.
• However, upon drilling down into the specifics of the irrigation projects, we find
that irrigation pipeline can broadly be divided into two kinds 1) projects under
implementation (about Rs 5trn) and 2) projects in the idea stage worth about Rs
4trn. Of the projects under implementation, over 50% of the work had been
completed as of Mar-19, and we assume over FY20-21, a large part of the
remaining work too would have been completed.
• On the other hand, for the projects in the idea stage, the list comprises mostly
ambitious projects such as the river inter-linking projects, which may not see the
light of the day for several years.
• An analysis of the geographical mix of the proposed irrigation projects
unsurprisingly suggests that most of the large projects are in Telangana,
Karnataka and Andhra Pradesh, which will benefit EPC players like KNRC, NJCC
and Megha Engineering that are active in these geographies.
Exhibit 85: Telangana, AP, Karnataka and MP have most of the upcoming irrigation
projects – to benefit players like KNRC, NJCC, Megha and Dilip Buildcon (Rs bn)
(Rs bn)
2,500
2,000
1,500
KNRC, NJCC, Megha and Dilip 1,000
Buildcon to benefit as most of 500
the large irrigation projects are
0
in their core focus geographies
Karnataka
Odisha
West Bengal
Pan India
Jharkhand
Gujarat
Pradesh
Maharashtra
Uttar Pradesh
Tamil Nadu I Telangana
Telangana
Madhya
Tamil Nadu
Madhya Pradesh I
Gujarat I Maharashtra
Pradesh
Andhra
Uttar Pradesh
Andhra Pradesh I
Exhibit 86: Most of the large irrigation projects are in AP, Karnataka and Telangana; large value of centre-funded projects are in the
conceptualization stage
Conceptualization Development Implementation Promoter
(Rs bn) DPR/
Idea DPR Notice to
Feasibility Study Centre States/UTs Grand Total
Stage Approved Proceed
in Progress
Andhra Pradesh 213 - - 1,084 952 345 1,297
Andhra Pradesh | Tamil
606 - - - 606 - 606
Nadu | Telangana
Gujarat - 42 - 315 315 42 358
Gujarat | Maharashtra 102 - - - 102 - 102
Jharkhand - - - 140 140 - 140
Karnataka 1,549 - - 218 108 1,659 1,768
Madhya Pradesh - 225 298 327 - 850 850
Madhya Pradesh | Uttar
351 - - - 351 - 351
Pradesh
Maharashtra - - - 128 128 - 128
Pan India 374 - - 261 635 - 635
Tamil Nadu 575 - - - - 575 575
Telangana - - - 2,294 175 2,119 2,294
Uttar Pradesh - - - 101 101 - 101
West Bengal 82 - 48 129 - 259 259
Odisha 100 - - - - 100 100
Grand Total 3,952 268 346 4,998 3,614 5,950 9,564
River inter-linking: Huge EPC opportunity but lengthy

execution timeline and challenges on land, environment, R&R
The National Perspective Plan (NPP) prepared by the Ministry of Water Resources,
River Development and Ganja Rejuvenation (MoWR, RD, and GR) envisage
development through the inter-basin transfer of water from water surplus basins to
water-deficit basins. As part of the NPP, the National Water Development Agency
(NWDA) has identified 30 links under various phases of project preparation.
Further, four priority links (of 30) have been identified under NPP – Ken-Betwa link
project (KBLP) Phase I and II, Damanganga – Pinjal link project, Par – Tapi – Narmada
link project and the Godavari - Cauvery link project. The detailed project reports
(DPRs) of Ken-Betwa, Damanganga-Pinjal, Par-Tapi-Narmada link projects have been
completed. All statutory clearances have been accorded for Phase-I components and
most of the clearances for projects under Phase-II of the Ken-Betwa link project have
also been obtained. The clearances for the Damanganga-Pinjal and Par-Tapi-
Narmada link projects are being obtained from concerned ministries/departments.
The draft DPR of the Godavari-Cauvery link project has also been completed and sent
to party states for concurrence.
The completion of the identified 30 links will increase overall area under irrigation by
35 MHa; the supply of industrial and domestic water will increase by 14,000 million
cubic metres (mcm) and these will also be used for hydropower generation of ~34
GW.
• Part of the irrigation opportunity is through river inter-linking projects, which is a
40-year plan with a projected cost of Rs 10.6trn (at 2015-16 base price) to be
incurred between 2021-2050. The project aims to create 30 links of rivers through
a network of reservoirs and canals across India.
• The original National Perspective Plan (NPP) for water resource development was
prepared in 1980, which identified these 30 links (16 under Peninsular
Component and 14 under Himalayan Component). From this, a sub-set of four
priority links have been identified under the Peninsular river component to be
completed on a priority basis for an estimated cost of Rs 1.14trn to be incurred
over 2021-30.
• River inter-linking is proposed to create additional irrigation potential of 17.7mn
hectares and generation of 32.3GW hydropower, benefiting inland navigation,
fisheries development, flood control and water supply.
• This large-scale engineering project is expected to benefit a wide range of sectors
directly - EPC players, pump manufacturers, pipe manufacturers, cement
manufacturers, construction equipment players, steel manufacturers. Indirectly it
would benefit agrochemical and fertilizer players due to increased farm produce.
• The government has identified the below key linking projects to be completed on
a priority basis.
Exhibit 87: Priority river-linking projects planned for completion by 2030
Name of the Project Estimated Cost (Rs bn) Status Proposed timeline
Ken - Betwa Link Project 437 DPR prepared 2021-28
Damanganga - Pinjal Link Project 38 DPR prepared 2021-27
Par - Tapi-Narmada Link Project 128 DPR prepared 2022-27
Godavari – Cauvery 564 DPR under preparation 2023-30
The funding plan for river inter-linking projects is over-ambitious, with 85%
expected from banks/ multi-lateral agencies
• According to the minutes of the meeting of the task force set up for river inter-
linking projects, even as the project cost is estimated at a massive Rs 10.6trn (USD
150bn) over CY21-50, the government support for this is targeted to be kept
extremely low at 15-17% of the overall project cost.
• Domestic commercial banks are expected to fund 24-44% of the cost, while other
financial institutions, including multilateral agencies, are expected to fund the
remaining 39-59% of the cost.
• Such optimistic assumptions about external/bank funding for the project would
be a non-starter, especially given that there is no established and proven cost-
recovery option.
• Even with 15% government’s share of financing estimate, as per the task force’s
estimates, the cumulative impact over 2021-50 on India’s fiscal deficit (as a % of
GDP) will be 42bps.
• The existing DPRs prepared for the three (out of four) priority projects may
require further review of their comprehensiveness and validity on social and
environmental impact assessments. Economic and financial appraisals of the
projects also need to be revised because they are based on a methodology that
differs from the multi-lateral funding agencies.
• The ILR program also involves certain unique risk factors such as –
➢ Inter-state issues of specified links/groups where a river may cross two or
more states, resulting in water sharing disputes.
➢ International and inter-state issues of specified links/groups where a river
may cross two or more countries/states, resulting in even more complex
water sharing disputes.
Base-case capex phase out over 2021-50, leaving the annual opportunity to a
trickle
• We highlight the base-case capex phase-out of the river inter-linking project
below. Albeit ignoring the challenges associated with the project, we note that
the capex from these projects peaks out at Rs 712bn in 2026 and before that, it is
<Rs 200bn per annum.
• As compared with the annual spend of Rs 700-800bn on water supply and Rs
1trn+ on irrigation, these numbers do not look exciting at least until 2026.
• Given the significant social pushback along with environmental and execution
challenges associated with these projects, it is likely that the actual capex will be
even lower than that estimated by the task force in the base-case as below.
Exhibit 88: Planned capex phasing as per river link over 2021-50
FY FY FY FY Total Cost with
(Rs bn) FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY28 FY29 FY30
31-35 36-40 41-45 46-50 cost 25% adj.
Ken-Betwa 16 29 51 76 67 53 38 20 - - 349 437
Par-Tapi-Narmada 9 9 15 15 19 19 15 - - - 102 128
Damanganga-Pinjal - 3 8 7 6 4 2 - - - 30 38
Godavari (Akinepalli)
- - 23 36 64 97 86 68 50 26 451 564
- Cauvery
Rest of Group 4 35 35 35 35 35 627 803 1,004
Group 1 114 114 114 114 114 568 1,136 1,419
Group 2 75 75 75 75 75 375 750 938
Group 3 168 168 168 168 168 840 840 840 840 4,200 5,250
Parbati-Kalisindh-
4 4 4 4 4 20 39 49
Chambal
Bedti-Varda 11 11 22 27
Netravati–Hemavati 6 6 12 15
P.A.V Link 24 24 24 73 91
Equivalent irrigation
from BP water
158 158 158 474 592
dropped into
Mahanadi
Total Cost: FY16
26 41 96 134 157 569 537 484 445 422 2,605 1,039 1,022 864 8,441 NA
prices
Cost with technical
32 51 120 167 196 712 672 605 557 527 3,256 1,299 1,278 1,080 10,552 NA
adj. @25%
Energy segment capex lacks a clear roadmap

The energy sector includes conventional power, renewable energy (RE), petroleum
and natural gas. The power sector accounted for the largest share of infrastructure
investments in the past cycle (2003-10). Even as the energy use is projected to
snowball to fuel economic development and urbanization, India’s per capita energy
consumption remains low vis-à-vis even other developing countries. The poor
financial health of the state-owned distribution companies (Discoms) is the key
reason for the continued under-investment in the sector.
Over FY13-17, the share of power sector investment in the overall infrastructure
investment was ~37%, growing at an ~8% CAGR. For the 12th Five-Year-Plan, the
share of various segments in power sector investment was generation (61%),
transmission (20%) and distribution (19%). During the plan period, private sector
investment declined due to the cancellation of allocated coal blocks and financial
stress in Discoms, leading to stressed assets and non-performing loans. It is critical to
address these challenges to facilitate continued private sector contribution to the
power sector.
Even as there remains uncertainty on generation capex (especially thermal), there is
a strong case for continued investment in transmission and distribution capex in
India. As of Mar-19, the transmission lines in India aggregated to a total length of
413,407 circuit kilometres (ckm), growing at a CAGR of 7% since FY15. The share of
the centre, states and private sector in the overall length of the transmission lines
was 38%, 54% and 8%, respectively.
Distribution is the most critical link in the entire value chain of the power sector. The
distribution sector has seen many reforms recently with some improvement in
operational efficiency and power accessibility for the masses, but financial health
remains weak. Most of the distribution network is still managed by state distribution
companies with little participation from the private sector.
Exhibit 89: Per capita electricity consumption growth in India is still lags generation
capacity addition growth
(GW) (kWh)
500 1,250
1,208 1,200
400 344 1,181 382
305 320 1,149 356 370 1,150
275 1,122
300 1,100
1,075 231 235
223 226
200 211 218 1,050
189
1,010 7 1,000
7 7 7 46
100 6 7 45 45 46
6 43 45 950
41 87 94
46 50 69 78
0 39 900
RES Hydro Nuclear Thermal Total Per capita electricity

consumption (RHS)
Source: Central Electricity Authority
Exhibit 90: Per capita consumption in India is still relatively low Exhibit 91: …while distribution losses are amongst the highest
13,062
12,970
12,850
12,810
(KWh/person)
12,570
20%
14,000
18%
12,000 16%
10,000 14%
12%
8,000
4,900
10%
4,500
4,200
4,000
3,900
6,000 8%
6%
4,000
1,149
1,122
1,075
1,010
4%
957
2,000 2%
0 0%
2014 2015 2016 2017 2018 USA India China Singapore World
India China US Electricity distribution losses
Source: International Energy Agency, CEIC, Energy Information Administration, CEA Source: IEA Energy Atlas (2018)
Exhibit 92: Power transmission lines addition in India has slowed and has room to grow
(cKm)
5,00,000 4,41,533
4,13,407 4,25,071
3,90,970
4,00,000 3,67,851
3,41,551
3,13,437
3,00,000
2,00,000
1,00,000
0
+/-800 kVHVDC +/-500 kVHVDC 765kV
400kV 220kV Total
Source: Central Electricity Authority
Exhibit 93: Year-wise planned capital expenditure in the power sector over FY20 to FY25
Generation 301 538 638 635 650 507 3,268
Distribution 211 420 442 600 700 857 3,230
Transmission 549 539 507 515 515 415 3,041
Total 1,061 1,497 1,587 1,750 1,865 1,779 9,539
States 581 758 630 485 387 331 4,565
Overall total 1,641 2,256 2,217 2,235 2,252 2,110 14,104
Exhibit 94: Energy sector reforms timeline
Exhibit 95: Over Rs 9.3trn of proposed capex is in renewable power

Target by Dec 25 Actual achievement till Oct 19 Capacity to be added by Capex over FY20–FY25
Category
(in GW) (in GW) FY25 (in GW) (Rs bn)
Solar power 150 32 118 4,720
Wind power 97 37 60 4,193
Small hydro power 7 5 2 235
Bio power 12 10 2 147
Total 266 83 182 9,295
Exhibit 96: Total energy sector capital expenditure to be incurred from FY20 to FY25
Power 1,641 2,256 2,217 2,235 2,252 2,110 14,104
Renewable energy 305 1,510 1,440 1,700 2,170 2,170 9,295
Atomic Energy 116 215 283 331 327 283 1,555
PNG 273 435 483 415 229 105 1,946
Total 2,336 4,415 4,424 4,681 4,978 4,668 26,900
Exhibit 97: Entity-wise breakdown of planned power sector capex
Category Capex over FY20–FY25 (Rs bn)
Generation 3,268
NTPC 1,200
NHPC 440
THDC 104
SJVN 103
DVC 28
State (Hydro) 754
Private (Hydro) 638
Distribution 3,230
DDUGJY, IPDS, Proposed New Scheme 3,230
Transmission 3,041
PGCIL 655
DVC 5
State 1,900
Private 480
Total 9,539
States 4,565
Overall total 14,104
• Energy is the second-largest segment in the overall NIP plan with proposed
spending of Rs 27trn (now revised to Rs 35.7trn). Almost 46% of the total
proposed spending is planned for the renewables sector alone.
• The renewable capex target of Rs 16.28trn seems more of a top-down ambition
than a concrete plan for how that will materialize. In any case, energy generation
projects are driven mainly by market demand-supply factors and usually taken up
by private players and as such, the final number will depend on several factors
beyond the government’s control.
• In the non-renewable generation space, while the planned spending of Rs 6.4trn
looks rosy in the current environment, there are hardly any new thermal power
projects being set up either by NTPC or by private players. NTPC has publicly said
that it doesn’t plan to set up any new thermal power projects.
• Transmission and Distribution together have about Rs 10.25trn worth of capex
planned almost equally divided between the two. Of this, we are more hopeful of
transmission capex going through than the distribution part. A large part of
distribution capex will either be state-driven or dependent on the privatization of
discoms materializing, both of which look challenging in the short term.
Exhibit 98: Most projects in the energy space are categorized as under development
despite limited clarity on progress and ownership; a large chunk of generation capex
may not materialize (Rs bn)
(Rs bn)
12,000
10,000
8,000
6,000
4,000
2,000
0
Electricity Electricity Electricity Electricity Oil/ Gas/ LNG
Distribution Generation Transmission Generation storage
(Non (Renewable)
Renewable)
Implementation Conceptualization Development
Exhibit 99: Over 75% of the proposed distribution capex is still Exhibit 100: Transmission projects have better visibility as almost
unidentified 65% of them are mapped geographically
(Rs bn) Proposed Distribution capex (Rs bn)
Proposed Transmission capex
3,500 1,600
3,000
2,500 1,200
2,000
1,500 800
1,000
500 400
0
Bijli Achchhadan Yojana
Distribution
Distribution
Krushi Pump Yojana
Others
DDUGJY scheme
Mukhyamantri Saur
IPDS Power
0
Jharkhand Sampoorna
Power
Distribution…
LT and HT lines
Transmission
Transmission
Transmission
Transmission
Bangalore Urban
Underground cable
Transmission
Transmission
Others
LT AG Connection to
Gandhinagar
HVDS Development
Hyderabad
Transmission
Lucknow
Chennai
Kamrup
Replacement
Power
Exhibit 101: Rs 6.41trn of capex planned in non-renewable Exhibit 102: Planned capex of Rs 16.28trn in renewable energy
generation; most projects are already under implementation while seems too ambitious – most of this is in solar, wind and hydro
others are unlikely to materialize projects
(Rs bn) Proposed non-renewable generation capex (Rs bn) Proposed renewable generation capex
3,750 5,000
3,000
2,250 4,000
1,500
3,000
750
0 2,000
Lara I 2x800 MW
Cheyyur UMPP
Gadarwara
Darlipali 2x800MW
North Karanpura
Ghatampur
Udangudi 2x660MW
Others
Yadadri Expansion
Power Generation
Barh I 3 x 660 MW
3x660 MW
2x800MW
Expansion
3x660 MW
1,000
Projects
expansion
0
Power Projects
Wind Power
development
Bio Power
Others
Solar Power
Hydro Power
Manufacturing
Generation
30 pumped
Projects
solar tender
Small Hydro
Projects
Projects
strorage
Projects
linked
Despite the loopholes, NIP is an appreciable attempt at a

process-based approach to infrastructure development
Moving away from ad-hoc infrastructure development across various sectors to
centralized planning and perhaps centralized monitoring later
The mandate for NIP is defined as below:
• To identify technically feasible and financially/economically viable infrastructure
projects that can be initiated over FY20-25.
• To estimate annual infrastructure investment/capital costs.
• To guide the ministries in identifying appropriate sources of financing.
• To suggest measures to monitor the projects to minimize cost and time overrun.
Acting as an aggregator of the infrastructure database across the country

• It appears that NIP is setting out a target of Rs 111trn capex over FY20-25; in
reality, it is only collating a list of projects totalling up to that number or
thereabouts with a potential future monitoring and dispute redressal role.
• NIP is not based on how much the government can spend; instead it reflects the
universe of projects that need funding and a way to help fund these projects
through a common dashboard.
• It depends heavily on other ministries and states to input project details; at this
point, it is an aggregation of data input by others rather than NIP itself planning
the projects.
• Since it is a collation exercise at this stage, the project bank suffers from an
excessive number of ambitious projects at the idea stage rather than practical
ones.
• Data sanctity depends on user inputs and suffers from repetition and a lack of
verifiable DPRs; core schemes announced by the central government have been
taken at face value without adequate breakdown and may suffer from optimistic
targets.
• NIP also displays why an infrastructure-driven stimulus is so complex in India.
There are multiple domains due to the lack of a common infrastructure ministry;
the centre/state domain is the other problem.
• Unfortunately, it seems the website is still a work in progress despite its official
unveiling. Even during our collation of data, we noticed projects being
added/deleted, scope modified and project costs reduced.
NIP is not like the Project Monitoring Group (PMG) and will not suo moto push
infrastructure capex or resolve disputes
As per the mandate of the NIP, its role is still limited to identifying opportunities,
funding sources and suggesting measures to monitor the projects, unlike the Project
Monitoring Group (that was formed in 2013), which played a much more active role
in resolving issues.
• PMG used to facilitate collaboration between the states, centre and the project
entity apart from key stakeholders in the project; NIP by itself does not help with
that role though PMG and NIP are now part of the same department in the
government.
• Dispute redressal in PMG is currently the onus of the affected party; given that
the bulk of infrastructure capex is in the public domain, there may not be any
aggrieved party if the project is delayed before construction award.
Prioritizing allocation and focusing on identified projects

Since NIP plays a limited role as an aggregator of infrastructure projects undertaken
or planned in the country, it helps streamline the government bandwidth on
identified projects rather than continuously rethinking new opportunities to be
undertaken.
• It helps the government prioritize spending areas within the infrastructure
domain; this provides visibility on the requirement and shortage.
• Allows a well-defined data bank of identified infrastructure projects that the
Empowered Group of Ministers/Secretaries and PMG can work with to prioritize
resources and speed up the execution for these projects.
• This approach also helps to portray a holistic picture to multilateral funding
agencies and overseas pension funds/investors that can choose their areas of
interest and fund accordingly.
Over time, we expect the NIP to play a more involved role in improving data quality
and an active role in monitoring and pushing the progress of the projects.
Projects under development is where ordering visibility exists

• While projects under implementation are mostly already ordered out (discussed
later), projects under development stage are most likely candidates for ordering
in the near- to medium-term as they should be in some stage of readiness
compared to projects under the conceptualization stage.
• Out of the projects under development stage, 58% are in the energy segment
(mostly renewable) and 20% in transport (primarily roads and metros).
Unfortunately, most of these projects in the energy segment do not have their
DPRs prepared and could be at a nascent stage or even concept stage marked as
the development stage.
• While about 42% of the projects identified are already under various stages of
implementation, only about 10% of the remaining projects (under concept or
development stage) are in an advanced stage of progress and have their DPR
approved.
• Projects where even the DPR is not yet prepared have a substantial risk of not
seeing the light of the day and project cost revision. Even for projects under the
PM’s pet schemes such as Jal Jeevan Mission, PMGSY and energy, only ballpark
estimates have been provided without any breakdown.
Exhibit 103: As per remaining cost outlay, 37% of the projects are already under
implementation, while 39% are under development
(Rs bn)
NIP identified projects split as per remaining cost outlay
40,000
30,000
While the overall development
pipeline looks large, it is 20,000
primarily driven by renewables
and thermal power generation 10,000
projects
0
Communications Transport Energy Water & Sanitation
Social Logistics Commercial

Infrastructure Infrastructure
Exhibit 104: Small development pipeline in transport; centered Exhibit 105: Energy development pipeline looks encouraging but
around roads and metros; most railway projects are still in the mostly driven by renewable and thermal generation projects
concept stage (Rs bn) where there may be limited takers (Rs bn)
(Rs bn) (Rs bn)
16,000
24,000
14,000
12,000 18,000
10,000
8,000 12,000
6,000
6,000
4,000
2,000 0
0 Implementation Conceptualization Development
Implementation Conceptualization Development Oil/ Gas/ LNG storage
Roads Railway Tracks Urban public Transport Electricity Generation (Renewable)
Electricity Transmission
Ports Airports Railway Rolling Stock
Electricity Generation (Non Renewable)
Inland Waterways Electricity Distribution
Exhibit 106: Water space characterized by pet schemes such as JJM Exhibit 107: Affordable housing and education infrastructure form
(development) and river linking (concept stage) (Rs bn) the bulk of the social infrastructure segment (Rs bn)
(Rs bn) (Rs bn)
7,000 9,000
6,000 8,000
7,000
5,000 6,000
4,000 5,000
4,000
3,000 3,000
2,000 2,000
1,000
1,000 0
0
Implementation Conceptualization Development Education Infrastructure Medical Infrastructure
Irrigation WTP Sewage collection Solid Waste Management Affordable Housing Sports Infrastructure
Exhibit 108: 45% of state projects are in the concept stage as against only 16% for centre-driven projects; projects in the concept stage
are most at risk; 58% of under-development projects are in the energy space (mostly renewable)
(Rs bn) Others
Centre States/UTs Centre States/UTs Centre States/UTs
Transport 16,357 2,638 10,676 3,542 5,449 1,647 370
Roads 5,679 2,549 5,218 1,736 2,378 1,000
Railway Tracks 3,807 - 4,543 50 402 -
Urban public Transport 3,617 - 571 1,303 2,079 173 362
Ports 59 63 174 159 72 88 7
Airports 226 16 155 290 519 223
Railway Rolling Stock 2,915 - 15 - - -
Inland Waterways 54 10 - 4 - 164
Logistics 1,183 - 225 83 530 - 74
Transportation Pipelines 1,174 - 217 - 251 - 74
Logistics Infrastructure 8 - 8 83 279 -
Energy 2,641 1,428 108 1,349 20,396 1,076
Electricity Distribution - 138 - 28 3,330 55
Electricity Generation
2,587 896 - 851 3,124 890
(Non-Renewable)
Electricity Transmission - 215 - 320 3,202 77
Electricity Generation
- 106 - 116 10,684 -
(Renewable)
Oil/ Gas/ LNG storage 54 73 108 34 55 54
Water & Sanitation 5,944 3,155 1,494 2,943 2,828 928
Irrigation 2,181 2,817 1,433 2,519 - 614
WTP 3,637 270 42 180 2,808 273
Sewage collection 125 59 17 146 18 40
Solid Waste Management 2 9 2 98 2 2
Communications 791 20 48 - 31 -
Telecom (Fixed network) 171 - - - - -
Telecom services 619 - - - 13 -
Telecom Towers - 20 48 - 18 -
Social Infrastructure 8,741 215 381 346 1,567 355
Education Infrastructure 583 144 272 244 120 336
Medical Infrastructure 854 70 103 79 - 19
Affordable Housing 7,292 - - - 1,447 -
Sports Infrastructure 13 - 6 24 - -
Commercial Infrastructure 292 55 208 1,733 1,283 469
Common Infrastructure 242 54 208 1,533 385 441
Tourism Infrastructure - - - 156 - -
Terminal Markets 50 - - 30 75 22
Post-Harvest Storage
- 1 - 7 762 3
Infrastructure
Soil Testing Laboratories - - - 4 21 2
Cold Chain - - - 3 40 0
Grand Total 35,949 7,510 13,139 9,996 32,083 4,475 444
Exhibit 109: The bulk of the opportunity outside projects that are already under
implementation is either at the idea stage or a nascent stage of development without
ready DPRs – the time to market for them will be long (Rs bn)
(Rs bn)
30,000
20,000
DPR-approved projects are the
10,000
key for order visibility but are
only a handful – primarily in the
transport segment 0
Tender Invited
NA - Concept
Notice to
Idea Stage
Development
Design work
Awarded
Awarded
Implementation
Feasibility Study
Commissioned
FC Achieved
DPR Approved
Proceed
Tender
Tender
Partly
NA -
DPR/
NA -
Transport Energy Water & Sanitation Social Commercial Logistics Communications
Infrastructure Infrastructure
Exhibit 110: Most of the proposed projects in the energy sector do not have ready DPRs; overall <10% of projects in the
development/concept stage have ready DPRs
Water & Social Commercial
Status Logistics Energy Communications
Sanitation Infrastructure Infrastructure
Partially Commissioned - - - 171 - -
Notice to Proceed 913 3,996 5,271 619 3,485 346
Implementation Financial Closure Achieved - 73 24 20 103
Tender Awarded - - 19 - - -
Not Disclosed 298 - 3,785 - 5,368 -
Conceptualization Idea Stage 308 1,457 4,436 48 728 1,940
DPR Approved 315 120 340 31 338 414
DPR/Feasibility Study in
Development 260 1,011 3,416 - 656 1,287
Progress
Not Disclosed - 20,341 - - 928 50
Exhibit 111: Most under-implementation irrigation projects are in AP/Telangana, while
river linking projects are in the idea stage (Rs bn)
(Rs bn)
6,000
5,000
4,000
3,000
Bulk of the large water supply, 2,000
river inter-linking projects are 1,000
still in the idea stage while Jal 0
Implementation
Achieved
Approved
Stage
Awarded
Feasibility Study
Notice to
Jeevan Mission projects are in
Proceed
Idea
Tender
DPR
the DPR feasibility stage.
FC
DPR/
NA -
Irrigation WTP Sewage collection Solid Waste Management
Exhibit 112: Large development pipeline in the energy space led by renewals and T&D
(Rs bn)
(Rs bn)
25,000
20,000
15,000
10,000
Despite a large pipeline 5,000
0
categorized as being in the
Development
Achieved
Approved
Stage
Feasibility Study
Notice to
Proceed
Idea
development stage, energy
DPR
FC
NA -
sector projects are without
DPR/
ready DPRs. Large generation
pipeline also unlikely to
materialize.
Oil/ Gas/ LNG storage Electricity Generation (Renewable)
Electricity Transmission Electricity Generation (Non Renewable)
Electricity Distribution
Exhibit 113: Within social infrastructure, opportunities exist in the affordable housing
segment despite being classified largely as ‘under implementation’ (Rs bn)
(Rs bn)
6,000
5,000
4,000
3,000
Several large affordable 2,000
housing schemes under PMAY 1,000
and CLSS are classified under 0
Development
Approved
Stage
Achieved
Implementation
Feasibility Study
Notice to
Proceed
Idea
the implementation category

DPR
FC
though actual orders are yet to

NA -
DPR/
NA -
materialize.
Education Infrastructure Medical Infrastructure

Affordable Housing Sports Infrastructure
The government’s funding assumption for NIP is aggressive and challenging
• As per the Ministry of Finance presentation, the assumed shares of the
centre/state/private sector in the NIP target of Rs 111trn stand at 39%/40%/21%,
respectively. We believe this is an aggressive assumption across all spenders.
• We illustrate that the government has assumed a 21.5% CAGR in capital outlay
over FY20-25E and similar growth in budgetary support for infrastructure and
IEBR funding. Though this compares favourably with a ~24% CAGR in spending by
the centre over FY13-20 (26% IEBR and 22% budgetary support), it seems
aggressive when looked at against the growth over FY17-20 of just 12% CAGR
(15% IEBR and 10% budgetary support).
• Further, the worsening macroeconomic outlook does not justify the aggressive
assumption of 12.2% nominal GDP CAGR over FY20-25.
• On our estimate of Rs 73trn capex under the NIP and assuming a similar
centre/state/private split, the capital outlay CAGR for the centre asks for a 12%
CAGR. This would still call for an increase in budgetary outlay for infrastructure
capex by both the centre and states as a proportion of their revenues, which may
not be possible.
• In reality, we believe that demand for centre/state outlay will be even higher as in
the MoF’s assumption there is a huge reliance on the private sector in the roads
and power sectors, both of which may disappoint significantly.
• As such, the reliance on innovative methods of external funding is the key. While
some of these models are now being explored, the pick-up has been gradual and
is unlikely to compensate for the slowdown in the centre/state budgetary
support.
Exhibit 114: Government’s funding plan for NIP is based on aggressive assumptions
(Rs tn) FY19 RE FY20 BE FY21 FY22 FY23 FY24 FY25
Total Capital Outlay by Centre (Infra) A 3.54 3.77 4.58 5.56 6.76 8.21 9.97
Budgetary support (infra) B 1.39 1.53 1.86 2.25 2.74 3.33 4.04
C=B/A 39% 41% 41% 41% 41% 41% 41%
Budgetary Support/GDP (D=B/E) 0.73% 0.74% 0.82% 0.89% 0.96% 1.03% 1.11%
Incremental budgetary support/GDP vs FY20 0.07% 0.14% 0.21% 0.29% 0.36%
GDP in Rs trn (E) 190 205 227 254 286 323 365
% GDP growth assumed by Govt 8% 11% 12% 13% 13% 13%
Source: MoF, Systematix Research
Innovative funding models needed to mitigate government dependency on

infrastructure capex
• Innovative models sought to fund future capex on infrastructure such as InvITs,
TOT and SPV level fundraise; however, recent trends suggest that this would still
form a minuscule portion of the overall requirement.
• An analysis of the funding patterns of public capex in key categories such as
transport, water and T&D suggests that the dependency on multilateral agencies,
bond issuance etc., is rising. For example:
➢ Most metro projects are being funded largely by funds/loans from
multilateral agencies like JICA and the World Bank (40-60% of funding
secured from multilateral agencies).
➢ The NHAI has explored raising funds through the TOT model and bond
issuances rather than relying on government funding alone but has
succeeded only partially so far.
➢ Municipalities are increasingly trying to tap money from the bond market by
municipal bonds issuances but have had a patchy track record.
Counter-cyclical infrastructure spending – will the government

go for it?
To maintain its current investment-grade credit rating, India has a choice between
fiscal prudence through spending cuts and fiscal profligacy through spending its way
out of the recession.
While several experts have recommended the latter option of choosing spending on
capex that leads to a multiplier effect on growth, it has its associated risks and lag
effect. Understandably so, the government has chosen the path of least risk, which is
of fiscal prudence. We believe the current political decision is to revive growth
through enabling or even hoping that the manufacturing sector picks up and leads
the revival; even as the government itself tries to fill the void to the extent possible
through its capex spend.
The problem with this approach is that manufacturing revival is still at the mercy of
several factors beyond the government’s control, while infrastructure capex
spending, which is already at a peak, has plateaued to ~11% of government revenues
from the peak of 14.6% in FY17 and 14% in FY19.
However, in the past six months, the revival in the Indian economy, strong GST
collections and overall revenue buoyancy have led the centre and various states to
cut excise duty on petrol and diesel. This has given out a message that the fiscal
deficit is likely under control. If so, we would expect the government to step on the
pedal for infrastructure capex sooner than later.
Exhibit 115: After a strong infrastructure spending trajectory over FY13-19 by the
centre and states, we expect slower growth over FY21-25E
(Rs bn)
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
FY10
FY13
FY06
FY07
FY08
FY09
FY11
FY12
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
FY24E
FY25E
FY26E
State Infra spend Centre Infra spend
Distressed public debt situation leaves limited room for

growth stimulus
India’s Debt to GDP is likely to remain stubbornly high at 9-11% between FY22-
FY26E; importantly, interest cost as a percentage of revenue is expected to rise
from 25% in FY19 to ~30% by FY23.
The 30-year high fiscal deficit witnessed in FY21 has largely been utilized to meet the
revenue shortfall rather than stimulate growth. Hence, this would have a lower
multiplier on growth and would lead to an elevated fiscal deficit for a long time.
Based on the decline in FY21 GDP growth, widening primary deficit and high interest
rates, public debt to GDP is likely to rise even further in FY22 and stay at 92% levels
until FY26, on our estimates. If the interest rate is lower than the economy’s growth
rate, it will help offset the impact of the primary deficit on debt growth and keep a
check on the debt to GDP ratio. However, it is unlikely that the interest rates in India
will move to the sub-zero level.
For most countries, especially the developed economies, public debt to GDP is likely
to be in triple digits in 2020. However, developed economies are not saddled with
high interest payments that consume a large part of their tax revenues as their cost
of borrowing is significantly lower than India’s.
A large part of India’s tax revenues is used to service debt payments. With the rising
debt ratio and falling tax revenues, we believe ~30% of tax revenues would be used
to meet interest payments in FY23, and that proportion will remain elevated going
forward.
Exhibit 116: Interest payments as % of GDP rising due to higher Exhibit 117: Interest payments as % of govt revenues have started
debt to rise
8.0% 45%
7.5%
40%
7.0%
6.5% 35%
6.0%
5.5% 30%
5.0%
25%
4.5%
4.0% 20%
FY98
FY08
FY22E
FY24E
FY26E
FY90
FY92
FY94
FY96
FY00
FY02
FY04
FY06
FY10
FY12
FY14
FY16
FY18
FY20
FY90
FY94
FY92
FY96
FY98
FY00
FY02
FY04
FY06
FY08
FY10
FY12
FY14
FY16
FY18
FY20
FY22E
FY24E
FY26E
Interest payments/GDP Interest payments/Revenue
Source: CMIE, Systematix Research Source: CMIE, Systematix Research
India’s worsening fiscal space can’t be justified against the rise in other countries…
While it is evident that growth and the rising fiscal stress are the key challenges for
the Indian economy, it is often argued that counter-cyclical spending on
infrastructure can bail out the economy from the pain.
Therefore, we look into past episodes of fiscal stress and the government’s ability
to launch a counter-cyclical infrastructure spending as large as the National
Infrastructure Pipeline.
While traditional economists and the mainstream media like to focus on debt as a %
of GDP, we look at debt and servicing ability as a proportion of government revenues
just as we would look at a company.
The purpose of this analysis is to illustrate the key difference between India and
other countries in terms of the spending ability in the context of GDP.
The Indian government’s revenues are significantly lower than other
large/developed countries. As such, when one looks at debt/GDP, tax/GDP also
becomes a key metric to evaluate. This is where India fares poorly compared to other
countries as illustrated in the charts below.
Exhibit 118: India's capacity to support high levels of debt Exhibit 119: …as its tax collection as % of GDP is among the lowest
constrained by its ability to raise revenues…
(x)
Govt revenues as % of GDP
5.5 50 46 46
45
39 38
5.0 40 35
35 30 30
4.5 30 26
23
25 20 19 19
4.0 20
15 12
3.5 10
5
3.0 0
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
FY24E
FY25E
FY26E
Indonesia
Malaysia
USA
India
Vietnam
Italy
Brazil
UK
Mexico
China
Germany
Spain
Japan
Public debt/Revenues
Source: CMIE, Systematix Research Source: CMIE, Bloomberg, Systematix Research
Exhibit 120: Large part of India’s revenues used to service debt… Exhibit 121: …as its debt/revenue is amongst the highest globally
Interest payments as % of debt (Borrowing cost) Govt debt/Govt revenue

12
7
10.0 5.9
10 6
4.9
5
8
6.5 3.5
4
6 3.0 2.9
3 2.6 2.4 2.3
1.9 1.8
4 2 1.3 1.2
1 0.6
2
0.7 0.7 0.6 0.4 0.3 0.1 0
0
Italy
China
India
USA
Malaysia
Indonesia
Vietnam
Brazil
Mexico
UK
Spain
Japan
Germany
Mexico India Italy Spain Brazil USA Germany United
Kingdom
Source: CMIE, Bloomberg, Systematix Research Source: State Budgets, Systematix Research
Why India must be wary of higher debt and interest cost unlike developed
markets?
Like corporates where high leverage and low debt servicing ability can lead to default
risk, the government’s balance sheet is also impacted in the same way. Exhibit 122
below shows that higher debt/revenue and fixed costs as a percentage of revenues
directly correlate with India’s sovereign ratings. While even other countries resort to
higher debt/GDP, it may not translate into a high debt/revenue multiple for them.
India’s low debt servicing capability puts it in a much more difficult situation.
Exhibit 124 shows how India’s sovereign rating has an almost perfect inverse
correlation with government interest expense/debt. Thus, to argue that India can
raise its debt/GDP and at the same time enjoy lower costs on that debt would be
optimistic.
Exhibit 122: Debt/revenue has a direct bearing on the rating Exhibit 123: Fixed costs such as interest, subsidies and revenue
expenditure as a share of government revenues
(x) (%)
5.5 150
5.0 140
130
4.5
120
4.0
110
3.5 100
3.0 90
FY96
FY11
FY91
FY92
FY93
FY94
FY95
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20P
FY93
FY00
FY11
FY18
FY91
FY92
FY94
FY95
FY96
FY97
FY98
FY99
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY12
FY13
FY14
FY15
FY16
FY17
FY19
FY20P
Public debt/Revenues Int + Sub + RevEx (RHS) 100% of revenue level (RHS)
Source: Systematix Research, India Budget, RBI Source: Systematix Research, India Budget, RBI
Exhibit 124: India’s sovereign credit rating over time …. Exhibit 125: …has a clear inverse relation to its borrowing cost
12 9.5%
11 9.0%
10 8.5%
8.0%
9
7.5%
8
7.0%
7
6.5%
6 6.0%
FY90
FY08
FY18
FY92
FY94
FY96
FY98
FY00
FY02
FY04
FY06
FY10
FY12
FY14
FY16
FY20
FY14
FY16
FY18
FY20
FY90
FY92
FY94
FY96
FY98
FY00
FY02
FY04
FY06
FY08
FY10
FY12
India S&P Rating Interest/Debt
Source: Systematix Research, S&P Source: Systematix Research, India Budget, RBI
Rating scale on LHS refers to BBB as 11, BBB- as 10, BB+ as 9 and BB as 8
India’s fiscal strength has deteriorated due to COVID-19 and structural issues that
will last for a while – implications are that the government’s ability for outsized
infrastructure capex is limited.
Exhibits 122 and 123 above show that India’s debt/revenue and debt servicing ability
improved continuously until FY17. However, a mix of factors such as subsidies and
structurally rising revenue expenditure has deteriorated these debt metrics.
As depicted below, we estimate these debt metrics to worsen to FY02-05 levels,
much greater than even during the Global Financial Crisis - GFC.
More importantly, while COVID-19 is a trigger, we highlight that the worsening of the
fiscal math was evident post FY17 and will sustain until FY25 unless the government
undertakes urgent measures to control the deterioration.
These measures could be either spending cutback or growth revival or a mix of both
– 1) cut back in spending, of which revenue expenditure is stubborn and unlikely to
reduce and thus the axe falls on capex, 2) sharp revival in nominal growth (preferably
non-agriculture) that boosts tax revenues for the government.
The current track record suggests that the government has chosen a cutback in
direct spending and is hoping for the private sector to chip in for growth spending.
Traditionally, the key reason for borrowing by the government has been to fund
capex and was justified as it was productive expenditure. However, as Exhibit 126
illustrates, the government is increasingly borrowing to fund even its revenue
expenditure, leaving very little room for borrowing for capex.
The trend of debt increase/capex has an upward slope suggesting that increasingly,
debt is not only funding more than just capex, but it is worsening with every passing
year. Our estimates suggest that over FY21-26E, this ratio will aggravate as the
government will have to borrow more to service debt and revenue expenditure.
Exhibit 126: Increasingly, debt being used for funding even the revenue deficit and not
just capex – likely to aggravate further over FY21-26E (Rs trn)
(Rs tn) (x)
35 4.0
30 3.5
25 3.0
2.5
20
2.0
15
1.5
10 1.0
5 0.5
0 0.0
FY22E
FY26E
FY10
FY14
FY18
FY24E
FY90
FY92
FY94
FY96
FY98
FY00
FY02
FY04
FY06
FY08
FY12
FY16
FY20
Debt increase Capex
Debt increase/Capex (RHS) Linear (Debt increase/Capex (RHS))
Source: Systematix Research, India Budget, RBI
Impact of operating leverage from reducing fiscal space to leave little for direct
infrastructure spending
While traditional economists like to focus on debt as a % of GDP, we look at debt and
servicing ability as a proportion of government revenues just as we would look at a
company. We use this to illustrate a key difference between India and other
countries. For our analysis, we have considered –
• Tax and non-tax income as revenue; disinvestment proceeds are treated as
Extraordinary (XO) gains.
• Revenue expenditure (RevEx) excludes interest expense and subsidies.
• EBITDA is revenue minus revenue expenditure.
• PBT is EBITDA minus interest expense.
• PBT+XO gains is PBT + disinvestment proceeds.
• Debt/Revenues and 1-(Interest+Subsidy+RevEx/Revenues) are key metrics for
evaluating debt servicing capability.
Exhibit 127: Downward trajectory for India’s revenue growth Exhibit 128: …while revenue expenditure growth on an
upward slope
(Rs tn) (Rs tn)
80 35% 70 30%
70 30%
60 25%
60 25%
20% 50
50 20%
15% 40
40 15%
10% 30
30
5% 10%
20 20
0%
10 10 5%
-5%
0 -10% 0 0%
FY21EE
FY22EE
FY23EE
FY24EE
FY25EE
FY26EE
FY05
FY06
FY07
FY08
FY01
FY02
FY03
FY04
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20PA
FY11
FY13
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY12
FY14
FY15
FY16
FY17
FY18
FY19
FY20PA
FY21EE
FY22EE
FY23EE
FY24EE
FY25EE
FY26EE
Revenue % growth (RHS) Linear (% growth (RHS)) Revenue expenditure % growth (RHS) Linear (% growth (RHS))
Exhibit 129: High operating leverage leaves little as EBITDA… Exhibit 130: … XO gains (disinvestment) made up for PBT loss until
FY17 but has worsened significantly since then
(Rs tn) (Rs tn)
8 35% 2
30% 0
6
25% -2
4 20% -4
15% -6
2
10% -8
0 5% -10
0% -12
-2
-5% -14
-4 -10% -16
FY21EE
FY22EE
FY23EE
FY24EE
FY25EE
FY26EE
FY04
FY09
FY17
FY01
FY02
FY03
FY05
FY06
FY07
FY08
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY18
FY19
FY20PA
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20PA
FY21EE
FY22EE
FY23EE
FY24EE
FY25EE
FY26EE
EBITDA EBITDA margin (RHS) PBT + XO Gains
Past episodes of fiscal stress suggest capex share in

government spending has deteriorated structurally
India does not have much history of counter-cyclical government spending on
Infrastructure
• The combined capex by the centre and states stagnated between FY98 and FY01.
That was also when high-interest costs, sticky revenue expenditure and subsidy
burden led to high fiscal deficit and public debt.
• Post FY01, capex revived sharply until FY04 at a CAGR of 27% as public finances
gradually started reviving (though arguably the start of capex was counter-
cyclical). However, the CAGR from FY98 to FY04 was still around the long-term
mean of 14% over 6-years from the start of the worsening of public finances.
• Similarly, post the GFC in 2008, capex growth dipped to a low of 9% over FY08 to
FY13 against 27% in the two years preceding the GFC.
Every crisis has led to a permanent deterioration in the capex share of government
spending
An interesting observation from the following chart is that whenever there has been
a jump in the capex-to-revenue ratio (due to counter-cyclical spending or otherwise),
subsequent declines ensured that the ratio worsened more than the start of that
spending spree. The bottom ratio was 27% in FY97 before going up to 32% by FY99
and ended lower at 23% in FY01. Similarly, from the lows of 23% in FY01, it went up
to 36% in FY04 but ended up even lower than FY01 in FY07 at 21%. Every crisis has
thus led to a permanent decline in this ratio by at least 2-3 ppt.
Post this crisis, we expect capex/revenue to settle at 19% levels as against 21% pre
COVID-19.
Exhibit 131: Capex/government revenue has declined consistently – episodes of
stressed public finances such as 98-01 and GFC have aggravated the slide
55%
50%
45%
40%
35%
30%
25%
20%
15%
FY98
FY12
FY86
FY88
FY90
FY92
FY94
FY96
FY00
FY02
FY04
FY06
FY08
FY10
FY14
FY16
FY18
FY26EE
FY22EE
FY24EE
FY20PA
Capex/Revenue
The centre’s capex has shifted from Defence and ‘Others’ to Roads and Railways
over the past decade even as the overall capex has consistently declined as a share
of central government revenues
One of the notable features of the centre’s capex as a share of government revenues
has been a consistent declining trajectory over the decades. Despite that, key
spending categories such as roads and railways have seen an increase, especially in
the past decade.
This is largely compensated by a decrease in the ‘Others’ category, which is
essentially the difference of capex as reported in the budget documents and the key
categories we identify above. Without debating whether this ‘Others’ spend is
productive or not (it may also be possible that some spending in the key categories is
routed through ‘Others’), we note that the ‘Others’ category spend as % of revenues
has already declined substantially and has been stabilizing at those levels for some
time now. Thus, the benefit, if any, of re-directing spending from ‘Others’ to the
more relevant categories of roads, railways has already materialized.
We believe that the overall capex trajectory will follow direct spending in the
relevant categories such as roads, railways and defence.
In a nutshell, even as the overall capex share in government revenues has declined
consistently, the decline in the ‘Others’ and defence categories has led to growth for
roads and railways. However, we have possibly now reached a point where further
such benefits for roads and railways may not be possible.
State infrastructure capex has stagnated, except for volatility around fiscal stress
episodes; transport, water and urban/rural development spending has gained
Unlike the central government’s capex/revenue, states’ capex/revenue has had a
volatile trend. The capex/revenue share has been stagnant rather than declining in
the long term. Transport, water supply, sanitation and urban/rural development
spending have consistently grown.
Arguably, water supply & sanitation and urban/rural development spending has also
grown, partially given the dedicated funding for some of these schemes by the
centre.
Irrigation and ‘Others’ categories have seen a decline in capex/revenue share while
the water, transport and urban/rural development categories have seen an increase.
Overall, we note that the volatility in state capex/revenue coincides with fiscal stress
episodes, suggesting a direct bearing on capex patterns at the state level.
Comparison with the Global Financial Crisis of 2008 and 1997-

2003 slowdown
Is the current fiscal crisis similar to the post-GFC period or is it back to 1997-2003
slowdown? As the charts below illustrate, we are close to or even worse than the
1997-2003 slowdown and much worse than the GFC.
The slowdown of 1997-2003
Exhibit 132: Centre’s infra capex picked up from FY2000 due to the Exhibit 133: Centre’s debt/revenue peaked at 6.8x in FY02 and
large spending program initiated in roads stabilized at 6.5x until FY05
(x)
40%
7.0
35%
30% 6.5
25%
6.0
20%
15% 5.5
10%
5.0
5%
0% 4.5
FY97 FY98 FY99 FY00 FY01 FY02 FY97 FY98 FY99 FY00 FY01 FY02
Center Infra Capex, YoY growth Center debt/Revenues
Source: Systematix Research Source: Systematix Research
Exhibit 134: States’ infra capex picked up only from FY03 after Exhibit 135: As with the centre, states’ debt/revenue metric
a long-drawn stagnation; even after the pick-up, the overall worsened until FY04 even as infra capex picked up in FY03
CAGR from FY98-04 was 15%, in line with the long-term mean itself. Peak debt/revenue of 2.93x in FY04
60% (x)
3.1
50%
2.9
40%
2.7
30% 2.5
20% 2.3
2.1
10%
1.9
0%
1.7
-10% 1.5
FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04
States Infra Capex, YoY growth States debt/Revenues
The Great Financial Crisis (GFC)

Exhibit 136: The centre’s direct infra capex spend continued Exhibit 137: …as despite the revenue decline, debt/revenue was
unabated from the GFC until FY11… not as big a challenge as FY01 or now
(x)
35%
6.3
30% 6.1
25% 5.9
5.7
20%
5.5
15% 5.3
10% 5.1
4.9
5%
4.7
0% 4.5
Exhibit 138: A sharp dip in IEBR funding driven projects led to an overall dip in capex
growth in FY10; recovery started from FY11
25%
20%
15%
10%
5%
0%
-5%
FY07 FY08 FY09 FY10 FY11 FY12
Total capex including IEBR

Exhibit 139: States’ infra capex was also strong before the GFC Exhibit 140: …this again was largely due to the declining debt/
and recovered after the FY10 blip, though at a slower pace revenue trend for states
(x)
30% 2.4
25% 2.3
2.2
20% 2.1
2.0
15%
1.9
10% 1.8
1.7
5%
1.6
0% 1.5
Source: RBI, Systematix Research Source: RBI, Systematix Research
Current scenario
The current scenario is much worse than during the GFC as key debt metrics are
inferior than that period and closer to the 1997-2003 slow down. Even after the GFC,
debt/revenue metrics for the centre and states were comfortable and trending
downward, unlike during 1997-2003 or now.
The debt/revenue metrics for the centre and states are likely to surpass the peak of
the 1997-2003 slowdown even without factoring in a counter-cyclical infrastructure
spending (unlike 2000-2004 when roads and railways spending received a push from
the centre).
India was rated ‘BB’ by S&P during 1998-2004 as its debt/revenue was uncontrollably
high. It would be a challenge for India to remain at the lowest investment grade of
‘BBB-’ (current rating) and at the same time indulge in a counter-cyclical
infrastructure spending driven stimulus to revive the economy.
Exhibit 141: Current trajectory for centre’s direct infra capex is on a Exhibit 142: …even though on debt/revenue metric, the centre will
decline; base normalization expected by FY23… exceed the FY02 peak of 6.8x and stabilize at 6.5x at least
(x)
40%
7.5
35%
30% 7.0
25% 6.5
20%
6.0
15%
5.5
10%
5% 5.0
0% 4.5
FY17 FY18 FY19 FY20 FY21E FY22E FY23E FY17 FY18 FY19 FY20 FY21E FY22E FY23E
Source: RBI, Budget documents, Systematix Research Source: RBI, Budget documents, Systematix Research
Exhibit 143: The current trajectory of states’ spending was already Exhibit 144: States’ debt/revenue metric is also likely to reach the
on a decline going into COVID-19; FY22E recovery is mostly FY04 peak of 2.9x even without a major infrastructure capex push
due to the low FY21E base than a real recovery
(x)
20% 2.7
15%
10% 2.5
5%
2.3
0%
-5% 2.1
-10%
-15% 1.9
-20%
1.7
-25%
-30% 1.5
FY17 FY18 FY19 FY20 FY21E FY22E FY23E FY17 FY18 FY19 FY20 FY21E FY22E FY23E
Source: RBI, Systematix Research Source: RBI, Systematix Research
States account for ~58% of infrastructure spending but are in a

significantly worse financial condition than the centre
Dire state of state finances in FY21; challenging to wade through FY22-25
The states are in a particularly bad shape due to lower tax collection buoyancy.
Spending, particularly capex, has dropped to a record low level. This implies that
despite the strong transfer of funds from the centre, state spending was restricted.
From a peak of 75% share in combined infrastructure spending in FY15, states saw
their share fall to <58% in FY21; we estimate this to fall further to 54-56% levels over
FY22-26E on account of low tax collections, stubbornly high revenue expenditure and
low devolution from the centre.
Exhibit 145: State infrastructure spending has slowed post FY19 – we estimate 10.8%
CAGR over FY21-26E compared to 14% CAGR historically
(Rs bn)
4,500 80%
4,000 70%
3,500 60%
3,000
50%
2,500
40%
2,000
30%
1,500
1,000 20%
500 10%
0 0%
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
FY24E
FY25E
FY26E
State Infra spend State share in combined Infra spend (RHS)
RBI study paints a grim picture

In its 2020 study of State Finances, the Reserve Bank of India (RBI) has raised
concerns over states’ ability to continue with large capex as revenues dwindle and
revenue expenditure rises. Its observation ties in with what we have argued earlier in
this report: India does not have the fiscal space for a big-bang infrastructure stimulus
as the debt overhang is not transient and may haunt until FY25E.
• Most states faced a revenue deficit in FY21 and will likely do so again in FY22, as
against a budgeted revenue surplus: Given the inter-linkage between growth and
tax revenues and the fact that tax revenues fall faster than GDP, they are likely to
remain low for the next few years, as per the RBI. It highlights that the worsening
of state finances is not temporary but will last for several years.
• Even as states’ GFD (Gross Fiscal Deficit)/GDP exceeded 3.2% in FY20 and 4% in
FY21P, they have not built enough cushion for macroeconomic threats: The
borrowing limit acts as a soft constraint for states; capex will, in turn, be sacrificed
to maintain GFD within 4% of GDP. Our analysis of the top-10 states (in terms of
infrastructure spending) suggests that their infrastructure spending exceeds GFD,
which means they are borrowing not only for capex but also for revenue
expenditure.
• States may have to face the difficult choice of putting investment projects on
hold: Given the multiplier effect, this will inevitably entail growth losses in a
vicious circle feeding itself. As per the RBI, states tend to cut back their capital
expenditure by almost 0.5% of GDP, on average, to meet fiscal deficit targets. UP,
AP, Rajasthan, TN and Telangana have consistently missed capex targets (except
for transport, energy and housing, all other segments have consistently suffered).
Actual data from CAG shows that state infrastructure capex has been muted post
FY19 – down ~8% in FY20; growth of ~3% in FY21.
• States’ fiscal position will be further affected by a surge in guarantees:
Guarantees issued by state governments rose to as much as 3% of GDP (mainly
relating to Discoms). Historically, it is a precursor to an actual increase in debt.
Even post-UDAY, Discoms continue to impart a significant downside risk with no
visible signs of a turnaround. Farm loan waivers and income support schemes are
further curbing states’ ability to spend on infrastructure.
While capex invariably always falls short of the target, FY22 may see further capex
cut and re-prioritization of sectors within that
India’s capital spending is not entirely executed and often falls short of the budgeted
targets. States tend to cut back their capital expenditure by almost 0.5% of GDP, on
average, to meet the prescribed fiscal deficit targets. States may further see major
adjustments and re-prioritization within the sectors where they spend most of their
money.
While the obvious focus in FY21 seems to be on capex in health and education
sectors in response to the pandemic, other critical sectors like roads and
construction may draw attention in FY22.
Total capital outlay for top-10 infrastructure spending states already accounts for
more than their gross fiscal deficit
Over FY16-20, non-infrastructure spending outpaced infrastructure spending for all
states and union territories due to various social sector commitments. While
cumulative infrastructure spending has grown at a CAGR of 11% over FY16-20, non-
infrastructure capex has grown at a 16% CAGR during the same period.
We also note that the total capital outlay for most of the states exceeds or is close to
exceeding their gross fiscal deficit (GFD), suggesting limited headroom available for
further growth in capex unless the GFD comes down through other measures.
The composition of GFD for these states suggests that while a large part of the GFD is
attributed to the capital outlay, most states have a parallel revenue deficit which
tends to be sticky as it is almost impossible to control revenue spending (mostly
recurring expenses like staff salaries, interest payments). Thus, the GFD can remain
in control either by reducing the capital outlay or growth revival. While growth
revival may not be completely in the government’s control, the obvious hit has been
capex.
It further does not help that states’ GFD, as a percentage of states’ GDP, has been
going up across the board since FY18. As a share of state revenues, the GFD is on an
average at 22% in FY20, i.e., pre COVID-19 itself.
Exhibit 146: Top-10 states based on Infra spending: Non-infra spend outpacing infra spend; total capital outlay almost equal to GFD
FY20RE Infra FY16-20 spend CAGR Fiscal Capital Capital Outlay/ Infra spend/
(Rs bn) spend Infra Non-Infra deficit Outlay GFD GFD
Uttar Pradesh 622 5% 7% 504 790 157% 123%
Maharashtra 337 19% 19% 786 463 59% 43%
Karnataka 280 19% -7% 388 369 95% 72%
Madhya Pradesh 235 13% 22% 327 292 89% 72%
Gujarat 223 6% -6% 271 272 100% 83%
Odisha 201 9% 5% 182 237 130% 110%
Telangana 67 -14% 40% 219 132 60% 30%
Tamil Nadu 238 13% 16% 551 312 57% 43%
Andhra Pradesh 72 -13% 33% 405 128 32% 18%
Rajasthan 144 -7% -7% 322 177 55% 45%
All States and UTs 3,944 11% 16% 6,524 5,308 81% 60%
Source: Systematix Research, RBI
Exhibit 147: GFD breakdown for top-10 states: Except UP, Odisha and Gujarat, most states have a revenue deficit too; GFD as a % of
state revenues is rising for all states
FY20RE Revenue Deficit/ Capital Gross Fiscal Revenue GFD as % of State revenues
(Rs bn) (Surplus) Outlay Deficit (GFD) Deficit/GFD FY19 FY20 FY21P
Uttar Pradesh -263 790 504 -52% 11% 14% 13%
Maharashtra 314 463 786 40% 8% 25% 16%
Karnataka -3 369 388 -1% 23% 22% 26%
Madhya Pradesh 27 292 327 8% 14% 22% 35%
Gujarat -11 272 271 -4% 19% 18% 21%
Odisha -62 237 182 -34% 10% 16% 14%
Telangana -1 132 219 0% 27% 20% 23%
Tamil Nadu 251 312 551 46% 27% 29% 27%
Andhra Pradesh 266 128 405 66% 31% 37% 30%
Rajasthan 280 177 322 87% 25% 21% 20%
All States and UTs 1,367 5,308 6,524 21% 18% 22% 19%
Source: Systematix Research, RBI
Despite past misses on budgeted spends, most states had still built optimistic
assumptions on capex for FY21 and missed it substantially
According to the RBI, overall spending by all states on infrastructure (housing, urban
development, water supply & sanitation, irrigation, energy and transport) grew at a
9% CAGR between FY16-20. The budgeted spending for FY20 and FY21 on these
categories for all the states suggests 17.8% and 7.1% YoY growth, respectively.
However, the actual data from the CAG shows that the state capex declined ~8% in
FY20 and grew just 3% in FY21.
• Of the top-10 states that account for over 70% of the total Infrastructure
spending by all states, only Madhya Pradesh had budgeted for a capex decline in
FY21. However, a major decline was actually reported by Uttar Pradesh (-18.2%),
Maharashtra (-21.2%) and Rajasthan (-7.1%).
• Telangana and Andhra Pradesh witnessed a major decline in infrastructure capex

in FY20 (led by the sharp curtailment in water supply and irrigation related
spending) and had budgeted for a sharp revival in spending in FY21.
• UP and Maharashtra, which are the top-2 states as per absolute infrastructure
spending and witnessed amongst the fastest growth rates until FY19, had
budgeted for 5% and -4% infrastructure capex growth in FY21 led by an across-
the-board cut in spending.
Exhibit 148: Most states fell short of FY20 budget estimates on capex and witnessed a
YoY decline
Most states fell short of FY20 budget estimates on capex and also
witnessed yoy decline
15% Haryana
% yoy change Maharashtra
in FY20 capex Tamil Nadu
5% over FY19
Karnataka
Uttar Pradesh
-5% Madhya
Pradesh
-15% Gujarat
-25%
-35%
% shortfall in capex from FY20BE

-45%
-90% -70% -50% -30% -10% 10%
Size of bubble represents the capex quantum by respective state
Exhibit 149: Larger states missed FY21 capex budgets
160% % yoy change

in FY21 Andhra Pradesh
140% budgeted
120% capex over
FY20
100%
West Bengal
80% Kerala
Tamil Nadu
60%
Uttar Pradesh
40%
20% Maharashtra Karnataka
0% Madhya
Jharkhand Pradesh
-20% Haryana
-40% Actual % yoy growth in FY21 capex over FY20
-100% -80% -60% -40% -20% 0% 20% 40% 60% 80%
Size of bubble represents the capex quantum by respective state
Exhibit 150: States like UP, AP, Rajasthan, TN and Telangana have seen massive cuts in actual capex as against their budgeted spends
% YoY growth Actuals over BE Actuals over RE
RE/BE comparison with actuals FY17 FY18 FY19 FY17 FY18 FY19
Andhra Pradesh 13.0% -36.3% -21.4% -19.4% -2.5% -59.5%
Bihar -5.4% -6.9% -41.9% 2.9% -43.5% 3.7%
Gujarat -9.7% -1.5% -2.3% 9.5% -10.8% -13.4%
Karnataka 8.3% -5.7% 2.7% 3.6% -0.9% -2.0%
Madhya Pradesh -14.2% 4.4% 3.3% -7.8% 12.0% -4.6%
Maharashtra -11.3% -19.3% 7.9% 17.3% -8.0% 13.9%
Odisha 14.4% 6.0% -2.4% -1.8% -0.7% -3.1%
Rajasthan -24.7% -16.5% -22.1% -18.1% -4.9% -8.1%
Tamil Nadu 6.9% -22.7% -21.4% -11.2% -11.5% -6.9%
Telangana 35.9% -18.2% -20.4% -17.8% -3.2% 0.0%
Uttar Pradesh -1.7% -26.1% -17.0% 20.7% -31.3% 0.7%
West Bengal -35.6% 23.4% -2.1% -2.0% -0.1% 11.3%
Exhibit 151: States have consistently missed their budgeted capex spend to meet fiscal deficit targets; while transport, energy and
housing have been as per budgets, other segments have seen massive cuts consistently
% YoY growth Actuals over BE Actuals over RE
RE/BE comparison with actuals FY17 FY18 FY19 FY17 FY18 FY19
Water Supply and Sanitation -9.1% -11.5% -10.6% -3.6% -11.9% -5.6%
Housing 3.5% -6.0% -66.0% 4.4% -19.8% -62.9%
Transport -1.6% -9.2% 0.9% -0.9% -14.7% -7.5%
Urban Development -29.5% -25.8% -22.4% -20.6% -22.4% -23.4%
Irrigation -11.0% -20.3% -17.0% -6.0% -12.8% -15.5%
Energy 10.2% 4.5% -6.3% 15.4% -5.2% -20.1%
Rural Development -20.5% -29.6% -36.8% -7.4% -23.2% -33.2%
Total -6.3% -14.0% -14.6% -1.5% -14.0% -17.0%
Borrowing limits act as a soft constraint for states; capex will in turn be sacrificed
to maintain GFD within 4% of GDP
With borrowings financing about 90% of states’ fiscal deficit, on average, borrowing
limits under Article 293 (3) act as a soft constraint. Thus, as per RBI, given the
financing constraints, states’ combined GFD is likely to remain around 4% of GDP
with a bias tilted to the upside, higher than the budgeted 2.8% of GDP. As a result, in
a bid to contain the fiscal deficit, states end up curtailing capex.
State guarantees rise to as much as 3% of GDP (mostly relating to Discoms),
historically a precursor to actual debt increase
Historically, any large accretion to states’ outstanding guarantees has, in general,
been followed by an increase in debt. For example, state guarantees, which
increased prior to 2014, fell sharply thereafter, primarily driven by subsuming of
power sector guarantees into state government liabilities under the UDAY program.
However, since FY18, net accretion to guarantees has seen a significant jump. This
could be an early sign of future fiscal risks.
Exhibit 152: Guarantees issued by states – historically, large guarantee accretion is a precursor to rising debt at the state levels as these
guarantees eventually get absorbed by the states
Guarantees outstanding Accretion during the year
(Rs trn) (% of GDP) (Rs trn) (% of GDP)
FY14 3.79 3.40 0.80 0.40
FY15 (UDAY year) 4.28 3.40 0.49 0.10
FY16 (UDAY year) 3.64 2.60 (0.64) (0.80)
FY17 3.12 2.00 (0.52) (0.60)
FY18 4.30 2.50 1.18 0.50
FY19 5.38 2.80 1.08 0.30
FY20P* 6.00 3.00 0.62 0.20
FY21** - - 0.90+ 0.42+
* Based on actual reported data for 20 states and last year's data for remaining
** As per fiscal package
Even post-UDAY, state-owned power Discoms continue to impart significant

downside risk (leading to higher liabilities) with no visible signs of a turnaround
The outstanding liabilities of the states increased by 1.5% of GDP due to UDAY in
FY16 and FY17. However, despite this steep fiscal cost, Discom losses reached the
pre-UDAY level of 0.3% of GDP in FY19. In fact, adjusted for revenue grants made
under UDAY – which are transitory and in nature of accounting transfers, Discom
losses in FY19 are significantly higher than FY16. Estimates of the revenue gap per
unit sold for FY20 reveal that most states have seen a further worsening in their
financial performance.
The financial position of Discoms is expected to have weakened further in FY21 as
the COVID-19 related lockdown has severely impacted power demand, particularly in
the lucrative industrial and commercial segments. Their cost structure is rigid due to
minimum commitments for power offtake in long-term PPAs. While the union
government announced liquidity support of Rs 900bn for Discoms to help tide over
immediate liquidity concerns, another round of bailouts of loss-making Discoms
seems imminent in the aftermath of the crisis, imparting downside risks to state
finances.
Farm loan waiver and income support schemes further curbing states’ ability to
spend on infrastructure
Compared with the total capex of ~Rs 3.5trn by all states in FY20, the total farm loan
waiver provided for the year was ~Rs 407bn (11.3% of total capex). Total farm loan
waivers announced so far since FY15 stand at Rs 2.55trn. Of this, Rs 1.44trn had been
provided for till FY20, while the remaining may reflect in future state budgets. In
addition, the trend of announcing farm loan waivers by states going into elections
has picked pace in the past few years, along with the amount. For example,
compared to farm loan waivers worth Rs 410bn announced in FY15, the amount
surged to Rs 950bn in FY19.
Unfortunately, large farm loan waivers have been announced by the states that are
large infrastructure spenders, thereby restricting infrastructure spending going
forward. On a recurring basis, it seems states will have to bear an incremental
amount of Rs 400-500bn of farm loan waivers and Rs 150-300bn of income support
schemes every year, which would comprise almost 20% of the total infrastructure
spending by all states put together.
Exhibit 153: Full impact of farm loan waiver yet to be provided for; may turn out to be a
recurring theme at the cost of infrastructure capex
(Rs bn)
1,000
900
800
700
600
500
400
300
200
100
0
FY15 FY16 FY17 FY18 FY19 FY20RE FY21BE To be
provided
for
Farm Loan Waiver
Source: RBI, Systematix Research
Exhibit 154: Farm loan waiver and income support schemes have accounted for as much as 20% of states’ infrastructure capex (Rs bn)
Year of Amount Amount Provided in the Budget
State
Announcement Announced FY15 FY16 FY17 FY18 FY19 FY20 RE FY21 BE
Andhra Pradesh FY15 240.0 40.0 7.4 35.1 36.0 8.8 - -
as % of State GDP - - -0.9 -0.1 -0.6 -0.6 -0.1 - -
Telangana FY15 170.0 42.5 42.5 29.6 40.2 - 60.0 62.3
as % of State GDP - - -1.0 -0.9 -0.6 -0.7 - -0.6 -0.6
Tamil Nadu FY17 52.8 - - 16.8 18.7 8.8 8.1 7.4
as % of State GDP - - - - -0.2 -0.2 -0.1 -0.0 -0.0
Maharashtra FY18 340.2 - - - 150.2 35.2 - -
as % of State GDP - - - - - -0.8 -0.1 - -
Maharashtra FY20 150.0 - - - 150.2 - 169.3 -
as % of State GDP - - - - - -0.8 - -0.6 -
Maharashtra FY21 70.0 - - - 150.2 - - 70.0
as % of State GDP - - - - - -0.8 - - -0.2
Uttar Pradesh FY18 363.6 - - - 211.0 37.3 5.4 3.2
as % of State GDP - - - - - -2.0 -0.2 -0.0 -0.0
Punjab FY18 100.0 - - - 3.5 42.4 20.0 20.0
as % of State GDP - - - - - -0.1 -0.8 -0.3 -0.3
Karnataka FY19 440.0 - - - 39.2 126.4 51.8 4.4
as % of State GDP - - - - - -0.4 -0.8 -0.3 -0.0
Rajasthan FY19 180.0 - - - 30.0 42.7 41.7
as % of State GDP - - - - - - -0.3 -0.4 -0.4
Madhya Pradesh FY19 365.0 - - - - - - -
as % of State GDP - - - - - - - - -
Chhattisgarh FY19 61.0 - - - - 32.5 49.8 -
as % of State GDP - - - - - - -1.1 -1.5 -
Jharkhand FY21 20.0 - - - - - - 20.0
as % of State GDP - - - - - - - - -0.5
Total - 2,552.6 82.5 49.9 81.5 498.8 321.6 407.1 228.9
As % to States' GDP 0.1 0.0 0.1 0.3 0.2 0.2 0.1
As % to States' expenditure 0.4 0.2 0.3 1.8 1.0 1.1 0.6
As % to States' Infra capex 4.7 2.4 3.3 19.5 11.0 11.9 5.8
Source: RBI, Systematix Research
National Monetization Pipeline: Center’s recourse to bridge

the funding gap until the fiscal crisis abates
Earlier in 2020, the Indian government announced a mega spending plan of Rs 111trn
over FY20-25 under its National Infrastructure Pipeline (NIP). However, with the
COVID-19 pandemic worsening the centre and states’ already weak fiscal situation,
the government is exploring alternative mechanisms to fund its infrastructure capex
and announced plans to monetize assets worth Rs 6trn through the National
Monetization Pipeline (NMP).
Our deep-dive analysis into the NMP suggests that the plans are over-ambitious and
would help raise direct proceeds of ~Rs 3.4trn for the government over FY22-25,
which is <5% of the overall planned infrastructure capex over that period.
Additionally, the planned asset monetization targets in key sectors such as roads are
10-20x the cumulative monetization so far, suggesting that execution challenges may
delay the overall monetization plans considerably.
• Niti Aayog has listed assets worth Rs 6trn that could be monetized over FY22-25
to raise resources for funding the central government’s greenfield infrastructure
capex. However, direct monetization of assets worth just ~Rs 3.4trn is planned,
while the remaining assets are likely to be developed via the public-private
partnerships-PPP route (included as monetization even as they would not help
raise resources for the government). In comparison, the planned infrastructure
capex over FY22-25 is >Rs 80trn and hence, even if the entire portfolio is
successfully monetized, it would contribute to <5% of the requirements.
• Procedural delays, bureaucratic red-tape and lack of trust in the political system
have often plagued the execution of even good plans. Execution challenges that
could delay the monetization plans can be gauged from the fact that – 1) in the
past three years, a total of 1,408km of roads have been monetized (additionally
586km to be monetized through the National Highways Authority of India’s
infrastructure investment trust planned for FY22) as against 26,700km of roads to
be monetized under NMP over FY22-25 – a 10-20x jump; 2) in August 2021, Indian
Railways witnessed a complete failure of its plans to award 109 routes for private
passenger train operations despite many bidders expressing interest earlier on –
the key reason cited was lack of an independent regulator; and 3) the
government had announced its plans to sell a majority stake in BPCL, Concor and
SCI in 2019; till date, these sales have not taken off despite buyer interest.
• The monetization pipeline comprises almost all the existing and under-
construction assets over FY22-25. We believe this target is aggressive and if
enacted, would lend a significant blow to the government’s future revenue
receipts. In railways, the 400-stations redevelopment program entails most Indian
cities with a population >100,000, despite a weak off-take in the past five years.
Targets in power generation include most operational renewable portfolios with
the central PSUs, while almost all centre-owned warehouses have been
considered for monetization. In telecom, all tower assets with co-location
revenue streams have been considered.
Direct monetization is only 57% of the NMP; balance proposed through the PPP
route
Accordingly, the cash proceeds to the government will be only Rs 3.4trn vs. the Rs
6trn headline proposed.
The key monetization routes outlined by the government for the identified assets are
1) The direct lease of assets for a finite timeline through InvIT, TOT, operate-
maintain-develop (OMD) agreements and 2) the PPP approach wherein the private
sector will deploy capex to develop the asset and run it for a finite life before
transferring it back to the government.
Under the PPP approach, there are no real/major monetary proceeds to the
government and yet it has been categorized under the NMP.
We segregate the assets identified for direct monetization and PPP and find that only
~57% of the total pipeline is proposed under the real monetization route.
Importantly, apart from roads and railways, most of the other identified assets are a
part of the central public sector enterprises (CPSEs), wherein the cash proceeds may
go to the respective PSUs rather than to the government, limiting the actual cash
proceeds to the government.
Exhibit 155: Sector-wise monetization pipeline over FY2022-25 – only ~57% of it is direct monetization
Sector/ asset Approach to monetization value Monetization plan (Rs bn)
Roads Market approach 1,602
Ports Capex approach 128
Airports Capex approach 208
Railway stations – Capex approach 763
Passenger trains – Capex approach 295
Private freight terminals – Capex approach 56
Railways
Railway colonies redevelopment – Capex approach 23
Track infrastructure under DFCCIL – Book value approach 202
Track, OHE – EV approach 187
Power generation Book value approach 398
Power transmission Market approach 452
Natural gas pipeline EV approach 245
Product pipeline EV approach 225
Sports stadium Capex approach 115
Warehousing Capex approach 289
Capex approach for Bharatnet fibre assets 263
Telecom
Market approach for tower assets 88
Mining Capex approach 287
Urban Housing redevelopment Capex approach 150
Total 5,976
Total of non-capex approach plans 3,399
Non-capex route monetization as proportion of total 57%
Source: Niti Aayog, Systematix Institutional Research; Note: Blue shaded area reflects proposed direct monetization route
Government’s method of arriving at an indicative value for the monetizable assets:
a) Market approach – based on comparable market transactions, such as per
kilometer of roads, per ckt km of transmission asset, per MW of generation
capacity.
b) Capex approach – PPP based models envisaging the capex investment by the
private sector.
c) Book value approach – considered in cases where information on comparable
market transactions or estimated capex investment is not available.
d) Enterprise value approach – considered for assets where information on the
existing revenue stream is available or can be reasonably projected based on
assumptions.
Exhibit 156: Roads, railways and power account for 67% of Exhibit 157: Annual phasing – FY23/24 loaded with the bulk of
proposed monetization monetization pipeline
Roads (Rs bn)
2% 2% 2% 2,000
3% Railways
4% Power transmission 1,800
27%
4% 1,600
Power generation
1,400
Telecom
5% 1,200
Warehousing
1,000
5% Mining 800
Natural gas pipeline 600
6% Product pipeline 400
Airports 200
7% Urban Housing redevelopment 0
25% FY22 FY23 FY24 FY25
Ports
8% Monetisation phasing
Sports stadium
Source: Niti Aayog, Systematix Institutional Research Source: Niti Aayog, Systematix Institutional Research
States have been the key drivers of infrastructure capex; centre to take the lead in
incremental capex driven by a sharp rise in IEBR (internal and extra budgetary
resources) funding
Exhibit 158: The share of IEBR funding rising to 50% of overall Exhibit 159: Direct asset monetization proceeds to fund almost
centre capex 20% of the centre’s infrastructure capex by FY25E
4,500 1,200 20%
4,000
1,000
3,500 15%
800
3,000
Rs bn
2,500 600 10%

Rs bn
2,000 400
1,500 5%
200
1,000
0 0%
500
FY22E FY23E FY24E FY25E
0 Direct Asset Monetisation
FY16 FY17 FY18 FY19 FY20P FY21E FY22E FY23E FY24E FY25E Direct monetisation as % of Total Infra capex (RHS)
States Centre IEBR Direct monetisation as % of Centre Infra capex (RHS)
Source: Niti Aayog, Systematix Institutional Research Source: Niti Aayog, Systematix Institutional Research
Roads: Rs 1.6trn of proposed monetization covers practically all potential assets
and is 10x past 3 years’ cumulative monetization
While roads is the largest sector in the NMP (27% of overall plans and 47% of direct
monetization plans), the monetization target of Rs 1.6trn from this sector seems
aggressive.
The aggregate length of assets considered for monetization over FY22-25E is
~26,700km. This is based on the length of all operational or to-be operational four-
lane highways and above in the country. Highways that will become operational over
the NMP period have also been considered part of the monetizable asset base. To
illustrate, as of Mar-20, the length of toll roads under the public-funded/annuity
mode was ~16,387km.
Exhibit 160: NMP effectively proposes to monetize all potential four-lane roads,
thereby leaving no scope for future monetization (except for new additions post FY25E)
Potential Asset base (Kms) 136,155
of which, 2 lane Kms 66,716
of which, 4 lane Kms 31,067
<2 lanes 38,372
Asset length to be monetized 26,700
Monetizable length as % of total base excluding private BOT Toll 22%
Monetizable length as % of 4 lane base 86%
Potential Asset base excluding private BOT Toll (Kms) 121,155
Length under public-funded/ annuity mode 16,387
Monetizable length as % of existing 4 lane roads excluding private BOT 163%
Anticipated addition of monetizable roads over FY20-25 10,313
Anticipated addition of monetizable roads p.a. over FY20-25 2,063
Source: Niti Aayog, Systematix Institutional Research
The multiple (in Rs mn per km) used to estimate the indicative value is based on the
average blended factor at Rs 60mn/km. The estimate has been arrived at based on 1)
the recent TOT transactions, 2) asset mix to be monetized and 3) the scale of
monetization.
Exhibit 161: Indicative value of Roads Monetization pipeline
(Rs bn) (Kms)
600 10,000
9,000
500 8,000
400 7,000
6,000
300 5,000
4,000
200 3,000
100 2,000
1,000
0 0
FY22 FY23 FY24 FY25
Roads Monetisation phasing by value
Roads Monetisation phasing by length (RHS)
As against Rs 675bn of road assets monetized till date by private companies as well
as NHAI (of which, NHAI is just Rs 170bn), the proposal to monetize Rs 1.6trn of road
assets is ~3x the total monetization so far and ~10x the NHAI monetization till date.
Exhibit 162: Roads monetized so far by NHAI (until FY21) is just 5.3% by length and
10.6% by value of the proposed monetization over FY22-25E
Bundle Date Length (Kms) Value (Rs bn) Rs mn/Km
TOT Bundle 1 Aug-18 682 97 142
TOT Bundle 2 Feb-19 586 Bid cancelled
TOT Bundle 3 Nov-19 566 50 89
TOT Bundle 4 Sep-20 401 Bid cancelled
TOT Bundle 5A-1 Jan-21 54 10 187
TOT Bundle 5A-2 Jan-21 106 13 118
Total so far 1,408 170 120
Proposed NHAI InviT Sep-21 586 50 85
Exhibit 163: Total assets monetized via the InvIT route (in the past 4 years) so far adds up to Rs 1.3trn, of which road assets are Rs
505bn; against this, the proposed monetization by NMP is Rs 1.6trn over FY22-25E
Assets under
InvIT Sector Public/Private Listing month
Management (Rs bn)
IRB InvIT Fund – IRB Toll roads Public May-17 65
India Grid Trust – Sterlite Power Transmission Public Jun-17 150
IndInfravit Trust – L&T IDPL Roads Private Jun-18 105
India Infrastructure Trust – Brookfield Gas pipeline Private Mar-19 145
Oriental Infra Trust – Oriental Structural Engineering Toll roads Private Jun-19 110
IRB Infrastructure Trust Toll roads Private Feb-20 225
Tower infrastructure Trust – Reliance & Brookfield Telecom towers Private Sep-20 420
Digital Fibre Infrastructure Trust Fibre Optic Private Oct-20 15
Powergrid InvIT Power Transmission Public May-21 78
Total InvIT AUM in India 1,313
of which, Road based 505
Railways: Of the ~Rs 1.53trn of proposed assets for monetization, only ~Rs 0.4trn is
direct monetization
Almost 50% of the railways monetization hinges upon station redevelopment
through PPP, which hasn’t taken off for almost half a decade now.
The bulk of the monetization plans in railways (including station redevelopment) is
planned under the PPP route, even as the redevelopment of 400 stations proposed
5-6 years ago is yet to take off in a meaningful way (due to execution and clearance-
related challenges).
Further, for assets such as Konkan Railway, there are multiple stakeholders already,
including state governments. Hence, the existing shareholder interests need to be
managed effectively before shaping the monetization transaction structure.
Tracks and overhead Electric wires (OHE) is expected to contribute ~Rs 187bn in
monetization proceeds even though the existing track infrastructure is largely for
exclusive and captive use of Indian Railways operations, and at present, there is no
concept of apportionment of a track access charge towards a specific use of tracks. A
monetization mechanism will thus need to be structured, covering infrastructure
access and usage agreement along with ring-fencing a track access charge-based
revenue regime.
For Private Passenger Trains, bidding for 150 trains is presently underway and the
project is expected to be awarded in FY22 – any scale-up will be contingent upon
successful award and experience from the current batch of PPP clusters.
Exhibit 164: Segment-wise annual phasing of the proposed railways assets
monetization; railway station development plans are optimistic
Railway assets to be monetized (Rs bn) FY22 FY23 FY24 FY25 Total
Railway station development (Nos) 170 293 176 124 763
Passenger train operations (PTO) (Nos) - 70 72 74 216
Track – OHE InvIT (Kms) - 187 - - 187
Good Sheds (Nos) - 16 21 19 56
Konkan Railway (Kms) - - 73 - 73
Hill Railways (Nos) 5 2 - - 6
Dedicated Freight Corridor (Kms) - - 101 101 202
Railway Colonies (Nos) 4 5 7 8 23
Total 178 572 449 326 1,525
Source: Niti Aayog, Systematix Institutional Research, Note: Blue shaded row highlights assets earmarked for
direct monetization, while the remaining are via PPP
As the following table depicts, monetization plans for the Railways segment consist
of several small assets to be bunched together (or even individually) but hitherto lack
a proper revenue-generating model. The IR has just begun with the concept of
private passenger trains but without a proper regulatory mechanism as it currently
operates as an operator, competitor as well as owner and regulator of the assets,
thereby posing significant scale-up risks for the PPP model.
Goods sheds may be in for a strong demand given their strategic locations, however,
successful execution of PPP in that segment will be strewn with challenges at a local
level.
Exhibit 165: Railways assets planned to be monetized (in numbers)
Overall Existing Proportion of overall
Railway assets to be monetized FY22 FY23 FY24 FY25 Total
assets existing assets
Railway station development (Nos) 40 120 120 120 400 7,325 5.5% of all stations
Passenger train operations (PTO) (Nos) - 30 30 30 90 13,169 5% of total trains
Track – OHE InvIT (Kms) - 1,400 - - 1,400 67,956 2% of network
21% of total good
Good Sheds (Nos) - 75 100 90 265 1,246
sheds
Konkan Railway (Kms) - - 741 - 741
Hill Railways (Nos) 2 2 - - 4 5
20% of total DFC
Dedicated Freight Corridor (Kms) - - 337 337 674 2,843
network
Railway Stadiums (Nos) 3 5 5 2 15
Railway Colonies (Nos) - - - - -
Exhibit 166: Annual phasing of proposed Railways assets monetization
(Rs bn)
700
600
500
400
300
200
100
0
FY22 FY23 FY24 FY25
Annual phasing of railway monetisation plan
Power Transmission: Almost all of PGCIL’s TBCB assets considered; successful

recent InvIT paves the way for future monetization
Almost all tariff-based competitive bidding (TBCB) assets of PGCIL are considered for
monetization. Cost-plus or regulated tariff mechanism (RTM) projects that involve
regulated returns on invested equity are housed in the parent entity’s balance sheet
and not under separate SPVs. The monetization for such assets may thus require a
scheme of arrangement/demerger process, which may pose associated transaction
overheads such as the continuation of the tax holiday on assets, capital gains tax and
stamp duty due to asset transfer.
Currently, almost 95% of PGCIL’s assets are under the RTM model, and therefore, the
bulk of the assets considered for monetization are from the TBCB route.
Exhibit 167: Annual phasing of power transmission assets monetization plan (Rs bn) –
includes recent InvIT transaction of Rs 77bn in FY22
(Rs bn) (cKm)
160 12,000
140
10,000
120
8,000
100
80 6,000
60
4,000
40
2,000
20
0 0
FY22 FY23 FY24 FY25
Value Assets (RHS)
Exhibit 168: Power Transmission assets planned to be monetized
Total transmission asset base (cKm) 413,407
Assets owned by PGCIL (cKm) 168,140
of which, 400kv and above (cKm) 156,370
of which, regulated assets (cKm) 159,733
Asset base proposed for monetization (cKm) 28,608
Indicative value (Rs bn) 452
Power Generation: Largely consists of the renewable portfolio with PSUs

In the case of power generation assets, the monetization of coal and gas assets has
not been considered keeping in mind strict ESG guidelines under which global
investors operate and the uncertain long-term potential of the assets. Further, asset-
level risks such as the dependence on high-cost LNG imports also limit private-sector
participation in gas-based power plants.
Around 3.5 GW of hydro assets (which is 27% of the existing hydro generation asset
capacity of central PSUs of about 12,864 MW) have been considered for
monetization over FY22-25.
The existing solar capacity of the central sector agencies is ~2.5 GW, with an
additional 1 GW capacity likely to be added over the next two years. Around 2.5 GW
of solar capacity (i.e., ~100% of the existing solar capacity of NTPC and NLC) has been
considered for monetization.
The challenge will be to monetize these assets at book value given that some of
these may be at a higher cost as newer assets can be built at cheaper rates.
Additionally, there are several competing assets available in the market.
Exhibit 169: Annual phasing of power transmission assets monetization plan (Rs bn) –
includes recent InvIT transaction of Rs 77bn in FY22
(Rs bn)
3,000 200
2,500
150
2,000
1,500 100
1,000
50
500
0 0
FY22 FY23 FY24 FY25
Hydro assets–existing RE assets – existing
Hydro assets – to be operational RE assets – to be operational
Monetisation value (RHS)
Spending and new awards have picked up sharply YTDFY22

Central government-funded infrastructure capex growth peaked out in FY17 and
has been falling since then; however, YTDFY22 has seen a capex spurt
Infrastructure capex got a boost from the central government from FY15 onwards,
with FY16 and FY17 witnessing a jump over the previous years’ spending. However,
the government data on budget allocation shows that direct funding by the central
government toward infrastructure capex has slowed considerably after FY17.
During this period, the government has also resorted to external budgetary
resources (IEBR) to fund a large part of the infrastructure spend (mostly roads and
railways). However, based on the budget data, apart from temporary blips, IEBR’s
share in the overall central government infrastructure capex has been around 40%
over the past 10 years. In contrast, over FY18-21, IEBR share has gone up to over
60%.
Importantly, central government infrastructure spending growth rates have come off
significantly. To illustrate, over FY13-17, central government spending on
infrastructure capex (including IEBR and ex-IEBR) increased at a CAGR of ~33%, but
this has dropped to 12.7% over FY17-22BE.
Unfortunately, the bulk of the slowdown is driven by the two largest spend buckets –
roads and railways. As against a spend CAGR of 37% over FY13-19 for roads, it is
estimated to slow down to 9.2% over FY19-22BE. Railways spending grew at a CAGR
of 18% over FY13-19 and is pegged to grow at a similar rate over FY19-22BE but only
after building in a sharp jump of almost 50% in FY22BE. Roads and railways together
account for 87% of FY22BE spending of the central government.
Exhibit 170: Central government spending growth on infrastructure capex slowing
down sharply from the FY16-17 peak
(Rs tn)
8 100%
7 80%
6 60%
5
40%
4
20%
3
2 0%
1 -20%
0 -40%
FY10
FY16
FY11
FY12
FY13
FY14
FY15
FY17
FY18
FY19
FY21 EE
FY20 EE
FY22 EE
FY23 EE
FY24 EE
FY25 EE
FY26 EE
Roads/PMGSY Railways MRTS/Metro

Amrut/Smart Cities PMAY - Urban/Rural YoY growth (RHS)
Share of IEBR (RHS)
Source: India Budget documents, Systematix Research
Exhibit 171: State infrastructure spending has stagnated post FY19
(Rs tn)
4 30%
20%
3
10%
2 0%
-10%
1
-20%
0 -30%
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20 EE
FY21 EE
FY22 EE
FY23 EE
FY24 EE
FY25 EE
FY26 EE
Transport Irrigation
Water Supply and Sanitation Rural Development
Urban Development Housing
YoY growth (RHS)
Our infrastructure award/tender activity tracker suggests a sharp pick up in

YTDFY22 contrary to our earlier expectations
• Our monthly infra tracker on tender and award activity shows that TTM tendering
activity is up 23% YoY as of Oct-21. The uptick was largely attributed to sectors
such as roads and hospitals and certain large projects in the ‘others’ category
while water supply, irrigation and railways have been weak.
• In FY19, the average monthly run rate of tender value was Rs 765bn, which has
come down to around Rs 560bn after FY19 (Rs 687bn on a TTM basis).
• Our high-frequency macro data heat map that tracks important
monthly/quarterly data points (on a TTM basis) depicts a steady improvement,
though on an extremely low base of last year. Most indicators are now, however,
converging to FY19 levels.
• TTM awarding activity is now up 106% YoY and ~10% higher than FY19 numbers.
The total awards monthly run rate for FY19 was Rs 377bn and has come down to
Rs 310bn since then (Rs 410bn on a TTM basis).
Monthly capex for both the centre and states have shot up contrary to our
expectations of a slowdown probably buoyed by the strong revenue collection in
YTDFY22.
Exhibit 172: YTDFY22 capex by the centre is up sharply on a Exhibit 173: …even on a monthly basis, the run-rate is higher than
low base the peak of FY19
(Rs mn)
(Rs bn)
2,50,000 200%
2,500 50%
2,00,000 150% 40%
2,000
100% 30%
1,50,000
1,500 20%
50%
1,00,000 10%
0% 1,000 0%
50,000 -50% -10%
500
-20%
0 -100%
0 -30%
FY11
YTDFY22
FY10
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
Oct-19
Dec-19
Apr-20
Dec-20
Apr-21
Feb-20
Jun-20
Oct-20
Aug-19
Aug-20
Jun-21
Oct-21
Aug-21
Feb-21
Monthly run-rate Centre Infra capex YoY growth (RHS) TTM Centre Infra capex YoY growth (RHS)
Exhibit 174: State capex has improved from the bottom… Exhibit 175: …and turned sharply positive on a TTM basis in Sep’21
(Rs bn) (Rs bn)
1,000 5,000 50%
900
4,500 40%
800
700 4,000 30%
600 20%
3,500
500 10%
400 3,000
0%
300 2,500 -10%
200
100 2,000 -20%
0 1,500 -30%
Dec-18
Dec-14
Dec-15
Dec-16
Dec-17
Dec-19
Dec-20
Jun-14
Jun-15
Jun-16
Jun-17
Jun-18
Jun-19
Jun-20
Jun-21
Mar-15
Sep-15
Mar-16
Sep-16
Mar-17
Mar-18
Mar-19
Mar-20
Mar-21
Sep-14
Sep-17
Sep-18
Sep-19
Sep-20
Sep-21
Mar-15
Mar-16
Mar-17
Mar-18
Mar-19
Mar-20
Mar-21
Sep-15
Sep-19
Sep-16
Sep-17
Sep-18
Sep-20
Sep-21
Monthy State Capex 12 per. Mov. Avg. (Monthy State Capex ) TTM State Capex YoY growth (RHS)
Exhibit 176: For Oct’21, published tenders were up 53% YoY… Exhibit 177: …while TTM tenders were ~8% below FY19 levels
(Rs bn) (Rs bn)
1,200 300% 12,000 80%
250% 60%
1,000 10,000
200%
40%
800 8,000
150%
20%
600 100% 6,000
0%
50% 4,000
400 -20%
0%
200 2,000 -40%
-50%
0 -100% 0 -60%
Aug-17
Jun-18
Dec-15
May-16
Mar-17
Dec-20
May-21
Oct-16
Apr-19
Oct-21
Jan-18
Nov-18
Jul-20
Feb-15
Jul-15
Sep-19
Feb-20
Apr-19
Apr-20
Apr-21
Dec-19
Dec-20
Jun-19
Aug-19
Oct-19
Jun-20
Aug-20
Oct-20
Jun-21
Aug-21
Oct-21
Feb-20
Feb-21
Tender value YoY growth (RHS) TTM tenders YoY growth (RHS)
Exhibit 178: For Oct’21, project awards were down 54% YoY Exhibit 179: …while TTM orders are up 67% YoY
(Rs bn) (Rs bn)
1,400 350% 6,000 120%
1,200 300% 100%
250% 5,000
80%
1,000
200% 4,000 60%
800 150% 40%
3,000
600 100% 20%
50% 2,000 0%
400
0% -20%
200 1,000
-50% -40%
0 -100% 0 -60%
Apr-19
Apr-20
Apr-21
Dec-19
Dec-20
Jun-19
Aug-19
Oct-19
Jun-20
Aug-20
Oct-20
Jun-21
Aug-21
Oct-21
Feb-20
Feb-21
Apr-14
Apr-19
May-16
Dec-15
Mar-17
Dec-20
Aug-17
May-21
Feb-15
Oct-16
Oct-21
Jan-18
Jun-18
Nov-18
Sep-14
Jul-15
Sep-19
Feb-20
Jul-20
Award value YoY growth (RHS) TTM awards YoY growth (RHS)
Spending on roads is a silver lining in the clouds

Smaller companies focused on road/water EPC projects and strong balance
sheets to outperform larger diversified players
While the construction sector has seen significant growth over FY15-19 (25%+
spending CAGR for the centre and states combined), the companies that we looked
at delivered only a 16% CAGR during this period, significantly underperforming the
overall infrastructure capex CAGR in India.
EBITDA/PAT CAGR for the same companies was better at 28% and 21%, respectively,
but still not very encouraging. Within that, the road players have done better,
delivering an EBITDA CAGR of 37% vs. an 11% CAGR by the other bucket of
housing/rail/consultancy-dependent companies.
Exhibit 180: Within the roads sector, PNCL/KNRC/GR Infra have Exhibit 181: …as compared to DBL/Sadbhav/Ashoka
outperformed on revenue growth…
(YoY Revenue (YoY Revenue
growth) growth)
140% 200%
120%
100% 150%
80% 100%
60%
40% 50%
20%
0%
0%
-20% -50%
FY18
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY19
FY20
FY21
-40%
FY16
FY18
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY17
FY19
FY20
FY21
Dilip Buildcon Ashoka Buildcon

KNR Constructions PNC Infratech GR Infra HG Infra Sadbhav Engineering
Source: Company, Systematix Research, Bloomberg Source: Company, Systematix Research, Bloomberg
Exhibit 182: Most road companies have witnessed a margin Exhibit 183: …except DBL and PSP Projects
expansion…
EBITDA (EBITDA
(margin) margin)
25% 30%
20% 25%
15% 20%
15%
10%
10%
5%
5%
0%
0%
FY13
FY21
FY07
FY08
FY09
FY10
FY11
FY12
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
NCC KNR Constructions PNC Infratech

Ashoka Buildcon GR Infra HG Infra Dilip Buildcon PSP Projects
Sadbhav Engineering
While RoE and RoCE may not be the best measures of efficiency for construction
companies, given that these companies tend to be asset-light at times, they are
reasonable filters for relative performance. On that count, while the larger players
have struggled to maintain their RoE/RoCE, smaller players such as PNCL/KNRC have
done better as they chose to stick to their core expertise and divest BOT/HAM
assets.
Exhibit 184: PNCL/KNRC/Ashoka have done better on RoCE… Exhibit 185: …against NJCC/Sadbhav/DBL/PSP
(%) (%)
45
60
40
35 50
30 40
25
20 30
15 20
10
10
5
0 0
-5
-10
FY09
FY13
FY07
FY08
FY10
FY11
FY12
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY07
FY12
FY17
FY08
FY09
FY10
FY11
FY13
FY14
FY15
FY16
FY18
FY19
FY20
FY21
KNR Constructions PNC Infratech Ashoka Buildcon
GR Infra HG Infra NCC Dilip Buildcon Sadbhav Engineering PSP Projects
Beyond the traditional growth and return ratios, cash generation is a key metric for
assessing how construction companies fare. As the charts below depict, KNRC/PNCL
are the only companies in the roads space that have demonstrated consistent
OCF/FCF (post interest expense) over FY14-19.
Thus, companies with strong balance sheets and smaller ambitions are a better bet
against large, diversified conglomerates with high aspirations, as they are
deleveraged, have a demonstrated history of FCF, are better managed and will likely
fare better in the upcoming awards as well.
As against PNCL/KNRC, we notice that most companies have struggled to generate or
maintain a consistent OCF/FCF pattern, mostly due to unrelated diversification and
aggressive growth campaigns.
Exhibit 186: PNCL/KNRC are the only road names to generate Exhibit 187: …while NJCC/DBL/Ashoka/Sadbhav have had a patchy
consistent OCF (ex-interest expense)…. track record
(Rs mn)
(Rs mn)
8,000
8,000
7,000
6,000 6,000
5,000
4,000
4,000
3,000 2,000
2,000
0
1,000
0 -2,000
-1,000
-4,000
-2,000
FY09
FY10
FY11
FY12
FY13
FY07
FY08
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
-6,000
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
KNR Constructions PNC Infratech GR Infra

HG Infra PSP Projects NCC Dilip Buildcon Ashoka Buildcon Sadbhav Engineering
Exhibit 188: PNCL/KNRC come out the best on FCF (ex-Interest Exhibit 189: …while, NJCC/DBL/Sadbhav have disappointed
expense) as well…
(Rs mn) (Rs mn)
8,000 8,000
6,000
6,000
4,000
4,000 2,000
0
2,000 -2,000
-4,000
0
-6,000
-2,000 -8,000
-10,000
-4,000 -12,000
FY11
FY07
FY08
FY09
FY10
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY07
FY10
FY08
FY09
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
NCC Dilip Buildcon Ashoka Buildcon Sadbhav Engineering
HG Infra PSP Projects
Further, companies like PNCL/KNRC have negligible net interest expense as a

percentage of EBITDA, while prominent names such as NJCC/Dilip/Sadbhav have
huge interest costs that take away a large chunk of their EBITDA, leaving little for the
bottom line or distributable cash flow.
Ashoka Buildcon is the other name that has done well on the OCF/FCF metric
consistently, along with lower interest costs as a percentage of EBITDA.
Exhibit 190: PNCL/KNRC/Ashoka/GR Infra standout for OCF/FCF generation as well as negligible interest cost as % of EBITDA
NCC 46 (5,216) 2,608 (23,627) (9,178) -11% 6% -51% -20% 60% 42%
PNC Infratech 75 18,742 15,467 6,960 8,419 25% 21% 9% 11% 12% 10%
Dilip Buildcon 82 (30,432) (18,210) (68,983) (34,723) -37% -22% -84% -42% 36% 36%
Ashoka Buildcon 27 18,704 11,090 12,562 7,241 69% 41% 46% 27% 13% 11%
GR Infra 169 20,036 15,025 227 (644) 12% 9% 0% 0% 9% 9%
HG Infra 41 7,737 6,599 (705) 718 19% 16% -2% 2% 17% 15%
PSP Projects 19 2,946 1,634 99 (540) 16% 9% 1% -3% 4% 4%
Exhibit 191: Sector book: bill ratio has been on an uptrend but highly cyclical
(x)
4.0
3.2
2.4
1.6
0.8
0.0
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
Book to bill ratio
Source: Systematix Research, Industry
KNRC/PNCL have outperformed the rest of the sector

Key reasons for the above highlighted outperformance for KNRC and PNCL as
compared to the rest of the sector:
• Strong focus on core focus markets by way of geography and segment.
Historically, companies in a bid to chase growth have diversified away from their
home markets - where they tend to be stronger – or focus segments. This has led
to lower margins and execution challenges for these companies as they lose
control of the actual execution and may need to rely on sub-contractors.
• The focus on restricting to core markets/segments is also a function of growth
that can be organically met by adding one’s own equipment and management
bandwidth. However, as soon as companies start to rely on outsourcing work to
other contractors, they end up being a service trading company.
In the Exhibits below, we highlight a set of companies among which KNRC and PNCL
have chosen to consistently focus on their home markets and the road/water
segments. In contrast, L&T, NJCC and Dilip Buildcon have consistently been much
more diversified. This depiction is despite suffering from a survivorship bias, wherein
a significant number of construction companies that went bankrupt in the previous
cycle do not even feature in this analysis.
Exhibit 192: KNRC state-wise order book split; >90% of projects Exhibit 193: KNRC segment-wise order book split – over 70% of
have been in South India projects historically in the roads segment; irrigation a new entry
100% 100%
90% 90%
80% 80%
70% 70%
60%
60%
50%
40% 50%
30% 40%
20% 30%
10% 20%
0% 10%
FY16 FY17 FY18 FY19 FY20 FY21 0%
AP & Telangana Tamil Nadu Karnataka FY16 FY17 FY18 FY19 FY20 FY21
Kerala Arunachal Pradesh Madhya Pradesh Roads Irrigation Others
Source: Company, Systematix Research Source: Company, Systematix Research
Exhibit 194: KNRC state-wise projects executed in the past Exhibit 195: Majority of PNCL’s projects have been in
five years UP/Maharashtra
State wise projects executed in last 5 years

100%
12% 90%
80%
31% Karnataka 70%
10% 60%
AP & Telangana 50%
Madhya Pradesh 40%
30%
Kerala
20%
12%
Tamil Nadu 10%
Others 0%
Uttar Pradesh Maharashtra Unidentified
12% Bihar Karnataka Rajasthan
23%
Exhibit 196: Dilip Buildcon’s order book thinly spread Exhibit 197: …even as its prime focus remains road; it has also
across multiple states… delved into airports, irrigation and mining
100% 100%
90% 90%
80% 80%
70% 70%
60% 60%
50% 50%
40% 40%
30% 30%
20% 20%
10% 10%
0% 0%
FY17 FY18 FY19 FY20 FY21 FY17 FY18 FY19 FY20 FY21
Maharashtra Karnataka UP AP MP Roads & Bridges Airport Tunnel
Goa Telangana Jharkhand Rajasthan Gujarat
Metro Irrigation Mining
Odisha West Bengal Punjab Chhattisgarh Haryana
Tamil Nadu Uttarakhand Bihar Urban development
Exhibit 198: NJCC has a diverse presence across buildings & Exhibit 199: …while geographically, it has been active across
factories, roads, water/irrigation, railways and others… several states with a prime focus on AP/Telangana
100% 100%
90% 90%
80% 80%
70% 70%
60% 60%
50% 50%
40% 40%
30% 30%
20% 20%
10% 10%
0% 0%
Dec-15 Sep-16 Dec-17 Dec-18 Dec-19 Mar-21 Dec-17 Dec-18 Dec-19
Buildings Roads Water & railways Maharashtra Telangana Gujarat Tamil Nadu
Karnataka Chhattisgarh AP UP
Electrical Irrigation Mining
Jharkhand New Delhi Punjab Bihar
Others International Kerala
Exhibit 200: L&T has a diverse presence across buildings & factories, Exhibit 201:…while client-wise private share has come off and
transport/heavy civil, water/irrigation, hydrocarbons and others… state share has gone up recently
Client mix in L&T's order backlog as of Sep'21

100%
15% 10%
80%
60%
40% Central Government

State Government
20% 33% PSUs
0% Private/International
FY16 FY17 FY18 FY21E
42%
Oil & Gas Power Others
Transport/Heavy Civil Urban Infra/B&F Water
Electrical T&D/Others
Valuation: Selective picks driven by earnings and cash flows

Since the bottom formed in Mar-Apr 2020, most stocks in our sector have rallied
~100%, with a few exceptions. However, the overall outlook has also improved
significantly since the lows of FY21. For example, compared to India staring at a fiscal
nightmare by FY22E, YTDFY22 revenue buoyancy and overall sentiment
improvement have led the government to drive significantly higher capex spending
and effect excise duty cut on petrol and diesel.
While continued worries on longer-term fiscal stress for the government remain,
there is a case for selective bets in the infrastructure space where earnings visibility,
supported by a credible plan for balance sheet deleveraging, exists.
NJCC is our top pick in the sector given its strong order backlog (4.5x TTM book: bill
as of Sep-21) and inexpensive valuations at 8.7x FY23E P/E despite significant
deleveraging that has already happened at the company. Additionally, we expect
NJCC to turn almost debt-free by FY24E on the back of strong OCF/FCF generation
and further monetization of investments in its subsidiaries.
L&T, KNRC and PNCL are our other key picks in the space. Strong earnings visibility
and balance sheet justify their case but higher than long-term mean valuations
restrict us from making a stronger case for them.
Exhibit 202: Implied P/E (FY24E) on our target price vs. long-term 1-year forward mean
P/E (x)
Companies Target implied (core business) LT avg +1 STD -1 STD
KNRC Constructions 16 15 20 10
Larsen & Toubro 16 21 28 14
PNCL Infratech 14 15 18 12
NJCC 12 14 21 7
Source: Company, Bloomberg, Systematix Research
Exhibit 203: Valuation comparison

Mkt Target ROE (%) P/E (x) Dividend Yield (%) FY21-23E CAGR
CMP
Company Cap Rating Price
(Rs) FY22E FY23E FY22E FY23E FY22E FY23E Sales EBITDA
(Rs bn) (Rs)
KNR Construction 295 83 BUY 356 18.7 19.1 21.6 17.6 0.2 0.3 23% 23%
Larsen & Toubro 1,866 2,621 BUY 2,287 12.5 14.9 26.3 19.9 1.7 2.3 18% 24%
PNC Infratech 289 74 BUY 347 13.3 13.9 18.0 15.2 0.4 0.7 14% 15%
NCC 75 46 BUY 132 7.0 8.9 11.8 8.7 1.7 2.3 21% 20%
Source: Bloomberg, Systematix Research
Exhibit 204: L&T – Core E&C value has declined in the past 2.5 Exhibit 205: Core E&C growth to revive but at a slower pace
years, while tech businesses have created value for its shareholders
(Rs/share) (Rs bn)
2,500 1,400 25%
2,000 1,200 20%
1,500 15%
1,000
1,000 10%
800
500 5%
600
0%
0
400
-5%
-500
Mar-19 Mar-20 Mar-21 Dec-21 200 -10%
Value of core E&C and others L&T Infotech 0 -15%
Mindtree LTTS FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22E FY23E
L&T Finance Holdco discount
L&T share price Core E&C value as of Mar-19 Core E&C revenues YoY growth (RHS)
Exhibit 206: KNRC is trading above its long-term mean P/E; we Exhibit 207: … perhaps the only construction company to generate
still like it due to its proven cautious strategy and as it is … positive OCF/FCF consistently over the past 10 years
(Rs bn)
25
6
20 5
4
15
3
10 2
1
5 0
-1
0
-2
Oct-11
Nov-21
Dec-09
Nov-10
Apr-17
Dec-20
Feb-08
Jun-15
Jul-14
Sep-12
Feb-19
Aug-13
May-16
Mar-18
Jan-09
Jan-20
FY21E
FY22E
FY23E
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
1year forward P/E (x) Average PE OCF - Net Interest expense FCF - Net Interest expense
Source: Company, Systematix Research, Bloomberg Source: Company Systematix Research
Exhibit 208: PNCL trading at close to mean valuations… Exhibit 209: …with a reasonable track record of positive OCF/FCF
25 (Rs bn)
8
20
6
15 4
10 2
5 0
-2
0
Sep-17
Sep-15
Sep-16
Sep-18
Sep-19
Sep-20
Sep-21
May-17
May-15
May-16
May-18
May-19
May-20
May-21
Jan-16
Jan-17
Jan-18
Jan-19
Jan-20
Jan-21
Jan-22
-4
FY21E
FY14
FY22E
FY23E
FY13
FY15
FY16
FY17
FY18
FY19
FY20
1year forward P/E (x) Average PE OCF - Net Interest Expense FCF - Net Interest Expense
Exhibit 210: NJCC trading at a significant discount to long-term Exhibit 211: …worst seems behind; it is likely to have negligible
mean valuations… levels of debt by FY24E
50 30,000 1.2
45
40 25,000 1.0
35
30 20,000 0.8
25
15,000 0.6
20
15 10,000 0.4
10
5 5,000 0.2
0
Nov-10
Jul-14
Jun-15
Nov-21
Dec-09
Dec-20
Oct-11
Apr-06
Feb-08
Sep-12
Apr-17
Feb-19
Mar-07
Aug-13
May-16
Mar-18
Jan-09
Jan-20
- 0.0
FY17
FY13
FY14
FY15
FY16
FY18
FY19
FY20
FY21
FY22E
FY23E
FY24E
1year forward P/E (x) Average PE Net debt (Rs bn) Net D/E (x) RHS
COMPANIES SECTION
Systematix
Larsen & Toubro 20 December 2021
Tech subsidiaries come to the fore as Infra tailwind pauses

INITIATING COVERAGE Larsen & Toubro (L&T) is not only the largest Indian infrastructure company but also
Sector: Infrastructure Rating: BUY fast-emerging as a tech giant with its three well-established subsidiaries together
generating revenues well over USD 3.5bn. A well-restructured balance sheet and
CMP: Rs 1,866 Target Price: Rs 2,287
strong management position the company in a sweet spot; we estimate it to deliver
Stock Info ~17%/25% revenue/PAT CAGR over FY21-23E in its core Engineering & Construction
Sensex/Nifty 58,117/ 17,325 (E&C) business vs. the 8-9% achieved over FY17-20. In the past year, while L&T’s
Bloomberg LT IN share price delivered a return of ~80%, the rally was largely driven by the re-rating
Equity shares (mn) 1,405 of its tech entities. It scores well on the performance of its tech services and is well-
52-wk High/Low Rs 1,983/ Rs 1,155 placed to benefit from a capex revival; however, we are cautious about the overall
Face value Rs 2 ordering environment. Nevertheless, the company now has a strong core E&C book:
M-Cap Rs 2,621bn/ USD 34.6bn bill ratio of 3.6x, which should help drive robust growth in the near term. We initiate
3-m Avg traded value USD 56mn coverage with a BUY rating and a target price of Rs 2,287 (upside of 23%).
Financial Snapshot (Rs bn) Balance sheet continues to improve

Y/E Mar FY22E FY23E FY24E
Over the last five years, L&T has delivered on its balance sheet restructuring promise
Revenue 1,626 1,896 2,110
EBITDA 197 240 269 by focusing on improving its working capital cycle and the disinvestment of its non-
PAT 100 132 150 core businesses, leading to FCF generation. We estimate its base-case RoE to improve
EPS (Rs) 71.0 93.6 107.0 to ~15% by FY23E on the continued improvement in its balance sheet. However, the
RoE % 12.5 14.9 15.2 company has suffered on its execution momentum due to the COVID-19-related
RoCE % 8.3 9.1 9.3 disruption and previously on account of an elongating execution cycle due to its
P/E (x) 26.3 19.9 17.4 adverse project mix. With the worst of the disruption now behind, we expect a strong
P/BV (x) 3.1 2.8 2.5 pick-up for its core infrastructure segment, led by base normalization and the on-
ground pick-up in activity. We estimate a 17% revenue/EBITDA CAGR over FY21-23E
Shareholding pattern (%)
in its core E&C business.
Sep'21 Jun'21 Mar'21
Promoter - - - Strong order backlog to drive execution growth
–Pledged - - -
FII 22.9 22.9 22.0 Post the strong order inflow momentum witnessed till FY19, there are looming
DII 33.1 32.8 33.2 concerns about a slowdown in the public infrastructure capex. However, the
Others 44.0 44.4 44.8 company’s strong order backlog of Rs 3.3trn as of Sep’21 (3.6x TTM book: bill ratio in
the core E&C segment) should suffice to drive near-term execution growth. Hopes of
Stock Performance (1-year) a private capex cycle revival and continued strength in its tech subsidiaries should allay
overall concerns.
160
150 Outlook and valuation
140
130 We initiate coverage on L&T with a BUY rating despite the recent outperformance
120 given the rising contribution from its tech subsidiaries; we also estimate an
110 improvement in its OCF/FCF generation on net working capital reduction. We value its
100
90
core E&C business at ~16x FY24E P/E while valuing the subsidiaries at MTM of current
80 share prices (less 20% holdco discount).
Jul-21
Dec-20
Jan-21
Feb-21
Jun-21
Mar-21
Apr-21
May-21
Aug-21
Sep-21
Oct-21
Nov-21
Dec-21
Key risks
LT SENSEX
1) Continued delay in execution in the core E&C business; 2) Potential margin impact
due to the sharp commodity price rise in the recent past; 3) Slowdown/de-rating or
increase in the holdco discount for its tech subsidiaries.
Amar Kedia
amarkedia@systematixgroup.in
+91 22 6619 8084
20 December 2021 Larsen & Toubro
Story in charts
Exhibit 1: Infrastructure segment order backlog growth has picked Exhibit 2: …while execution has been slower; though, this bodes
up in the past 12 months… well for a pick-up in execution from hereon
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research
Exhibit 3: Core E&C orders to grow at a CAGR of 11% between FY21-23 vs. 6% between
FY14-20
Source: Company, Systematix Institutional Research
Exhibit 4: Execution cycle for the current order mix to stabilize Exhibit 5: Annual order inflow for key segments - infrastructure &
hydrocarbon have replenished annual execution
Exhibit 6: Core E&C revenue growth to mirror industry growth… Exhibit 7: …while core E&C margins should do better on
improving trends and mix
Exhibit 8: Order backlog continues to grow despite the slow order Exhibit 9: Overall book: bill ratio remains healthy with core E&C
inflow growth book: bill ratio at 3.7x
Exhibit 10: Core E&C value has declined in the past 2.5 years, while tech businesses have
created value for L&T shareholders
Exhibit 11: Tech and finance subsidiaries now account for ~30% Exhibit 12: …contribution to increase to 50% of consolidated EBITDA
of consolidated revenues…
Exhibit 13: Bulk of the consolidated operating cash flow (OCF) Exhibit 14: …as standalone OCF has averaged only around 40%
driven by tech subsidiaries…
Exhibit 15: SoTP valuation yields a fair value of Rs 2,287/share

FY24E PAT Equity value L&T value L&T value per
P/E (x) Stake
(Rs bn) (Rs bn) (Rs bn) share (Rs)
L&T Core E&C 95.1 16 1,522 100.0% 1,522 1,084
L&T Finance 207 63.5% 131 93
L&T Infotech 1,301 74.1% 964 686
LTTS 602 74.2% 447 318
Mindtree 814 61.0% 497 354
BOT Assets value 52
Total subsidiaries value after 20% holding discount 1,203
L&T fair value 2,287
Source: Systematix Institutional Research
Company background
Larsen & Toubro is a technology, engineering, construction, manufacturing and
financial services conglomerate, with global operations. It addresses critical needs in
key sectors - Hydrocarbon, Infrastructure, Power, Process Industries and Defence - for
customers in over 30 countries. The company is engaged in core, high impact sectors
of the economy and accordingly has significant dependence on the government and
private sector capex. As of Sep-2021, L&T’s order book split according to customers
was 33% from state governments, 10% from central government, 42% from PSUs,
while the remaining from private sector/international clients. Of these, ~31% of the
projects were funded partially or largely by bilateral/multilateral funding agencies.
Exhibit 16: L&T’s business structure
Products
 Infrastructure: Buildings & factories, transportation infra, heavy civil infra, water
& effluent treatment, power T&D, metal & material handling.
 Power: EPC for thermal power plant, electrostatic precipitator, power equipment
manufacturing
 Heavy Engineering: Process plant equipment, nuclear power plant, equipment
piping centre & forgings
 Defence Engineering: Defence, aerospace, shipbuilding
 Hydrocarbon: Onshore, offshore
 Developmental Projects: Roads/transmission line, metros, power
 IT & TS: Information technology, technology services
 Financial Services: Rural lending, housing finance, wholesale finance, asset
management
 Others: Realty, industrial products & machinery, smart world & communications
Exhibit 17: L&T’s segment composition
Exhibit 18: Order book split by verticals as of Sep’21 Exhibit 19: Revenue split by verticals as of FY21
Exhibit 20: Order book split by geography as of Sep’21 Exhibit 21: Revenue split by geography as of FY21
Comparative Advantages & Barriers to Entry

 While the infrastructure construction sector has low entry barriers, which
manifests in a fragmented composition of mostly local or regional contractors,
there are only a handful of large pan-India players. L&T has a strong brand name
in the field of construction and manufacturing, which enhances clients’ trust in the
company. It is one of India’s most respected engineering companies and is known
for its custom-made technology-intensive equipment and systems. L&T’s
technological aptitude supports its design and manufacturing capabilities and
provides engineering and project management expertise. With a strong brand
name and manufacturing facilities, L&T has a competitive advantage.
 Economies of scale are difficult to achieve in the industry. This provides a cost
advantage for those producing in large capacities. It also makes production
costlier for new entrants. The capital requirements within the industry are high as
huge expenditures have to be incurred. The government policies within the
industry require strict licensing and legal requirements to be fulfilled before a
company can start selling. These factors make an entry for new players difficult.
 Presence across complementary business verticals of infrastructure also helps the
company diversify cyclical risks in a particular sub-segment of infrastructure,
unlike smaller names which may be present only in a few verticals, apart from
bringing in economies of scale advantages.
Key management team

Board of Directors:
 Mr. A. M. Naik: Group Chairman
 Mr. S. N. Subrahmanyan: Chief Executive Officer And Managing Director
 Mr. R. Shankar Raman: Whole-Time Director & Chief Financial Officer
 Mr. Shailendra Narain Roy: Whole-Time Director & Sr. Executive Vice President
(Power)
 Mr. D. K. Sen: Whole-Time Director & Sr. Executive Vice President (Infrastructure)
 Mr. M. V. Satish: Whole-Time Director & Sr. Executive Vice President (Buildings,
Minerals And Metals)
 Mr. Jayant Damodar Patil: Whole-Time Director & Sr. Executive Vice President
(Defence & Smart Technologies)
 Mr. M. M. Chitale: Independent Director
 Mr. Subodh Bhargava: Independent Director
 Mr. M. Damodaran: Independent Director
 Mr. Vikram Singh Mehta: Independent Director
 Mr. Adil Siraj Zainulbhai: Independent Director
 Mrs. Sunita Sharma: Nominee Of Life Insurance Corporation Of India
 Mr. Subramanian Sarma: Non-Executive Director
 Mrs. Naina Lal Kidwai: Independent Director
 Mr. Sanjeev Aga: Independent Director
 Mr. Narayanan Kumar: Independent Director
 Mr. Hemant Bhargava: Nominee of Life Insurance Corporation of India
Leadership Team:
 A. M. Naik: Group Chairman
 S. N. Subrahmanyan: Chief Executive Officer and Managing Director
 R. Shankar Raman: Whole-time Director & Chief Financial Officer
 Subramanian Sarma: Non-Executive Director, L&T CEO & Managing Director (L&T
Hydrocarbon Engineering)
 M. V. Satish: Whole-time Director & Sr. Executive Vice President (Buildings,
Minerals & Metals)
 S. N. Roy: Whole-time Director & Sr. Executive Vice President (Power & Corporate
Affairs)
 J. D. Patil: Whole-time Director & Sr. Executive Vice President (Defence & Smart
Technologies)
 D. K. Sen: Whole-time Director & Sr. Executive Vice President (Infrastructure)
Auditors:
 M/s. Deloitte Haskins & Sells LLP
Annual Report Analysis

Exhibit 22: Annual report analysis suggests a continuous improvement in balance sheet over the years
Key performance
Year Demand scenario & Outlook Key events
indicators
While capex spending in the Middle East have generally Revenue growth 8%
contracted, some areas in hydrocarbon and core The company divested its General
EBITDA growth 4%
infrastructure are still witnessing investments and these Insurance business in line with its stated
provide a favourable opportunity basket for growth in the objective of exiting non-core businesses.
region.
At a segment aggregate level, NWC as on Mar’17 decreased As a part of L&T’s goal of maximizing PAT growth 43%
to 21.14% of revenues as compared to 23.95% of revenue as shareholder value creation, it listed two Standalone Debt/Equity 0.23
on Mar’16. Release in working capital is attributable to of its subsidiaries, Larsen & Toubro
improved collections and better credit terms negotiated Infotech Limited and L&T Technology Consolidated ROE 13%
FY17 with vendors. Thus, the business operations generated cash Services Limited, during the year. FCF (Rs bn) 97
flows of Rs 61.5bn, significantly higher than Rs 33bn in FY16. Order backlog (Rs bn) 2,613
The company is in an advanced stage of Order inflow (Rs bn) 1,430
Investments in and loans to subsidiary and associate
divesting its ownership in a container port
companies decreased in L&T Shipbuilding – port business,
in Tamil Nadu to a strategic investor and
general insurance and hydrocarbon business, while
has demerged that business into a
additional funding was done in Hyderabad Metro and Nabha
separate company to facilitate the
Power.
divestment.
Capacity under-utilization in some of the capital-intensive
businesses continued resulting in lower returns.
Considering the returns potential and Revenue growth 9%
Execution was impacted in FY18 due to disruptions caused
business opportunities, the company has
by the implementation of GST as well as bottlenecks in some EBITDA growth 20%
infused additional capital of Rs 20bn in
projects due to tardy customer payments, delayed PAT growth 22%
L&T Finance Holdings Limited.
clearances, and land acquisition / right of way issue.
Standalone Debt/Equity 0.21
Business operations generated cash flows of Rs 29.5bn as Mr. AM Naik handed over his executive Consolidated ROE 14%
compared to Rs 59.8bn in the previous year. The drop was charge to the CEO & MD designate Mr. FCF (Rs bn) 36
mainly due to higher deployment of funds to support S.N. Subrahmanyan and continued as Order backlog (Rs bn) 2,631
growing business volumes. Chairman of the Group.
Order inflow (Rs bn) 1,529
FY18 The overarching goal is to enhance RoE. Levers to achieve The Company is awaiting regulatory
this include maintaining steady growth in revenues with approval for conclusion of its stake sale in
improvement in margins, control on working capital, a container port in Tamil Nadu. In
divestment of non-core businesses, endeavour to turn November 2017, L&T Metro Rail
around under-utilized facilities, minimizing capital (Hyderabad) Limited, a subsidiary
expenditure, avoiding investment in long gestation or asset company, commissioned a 30 km stretch
heavy businesses and higher pay-outs to shareholders. Both of the metro rail. Nabha Power project
FY17 and FY18 have shown that the company's efforts are received a favourable Supreme Court
yielding positive results and it is thus confident of continuing judgement on matters affecting the
its RoE enhancement journey during the current year as viability of the entity.
well.
The volatility in crude prices due to political and economic L&T received an approval from the Revenue growth 18%
crosscurrents led to reduced investments in OPEC regions. Competition Commission of India (CCI) EBITDA growth 32%
Having proactively readied itself for such an eventuality, the for divestment of its Electrical &
Automation business, subject to PAT growth 20%
company forayed into select African countries, Bangladesh
and Sri Lanka. This sustained drive over the last few years compliance to certain conditions. Standalone Debt/Equity 0.24
has started yielding results, with non-Middle East business L&T Metro Rail (Hyderabad) Limited Consolidated ROE 15%
contributing to around 45% of the international order book. commissioned an additional 26 km
stretch of metro rail network during the FCF (Rs bn) 57
FY19
On the strength of wide-ranging digital transformations year. Order backlog (Rs bn) 2,934
achieved successfully within the L&T group, it launched a
Order inflow (Rs bn) 1,768
new strategic initiative ‘L&T-NxT’. Leveraging the domain
expertise of L&T across diverse industry segments, L&T-NxT
targets building a business using new-age technologies, such
as IoT, digitalization and analytics, Artificial Intelligence,
Augmented/Virtual Reality, Geo-spatial applications and
Cyber Security.
Key performance
Year Demand scenario & Outlook Key events
indicators
With the onset of the COVID-19 pandemic, businesses in the During the year, L&T acquired a majority Revenue growth 8%
IT and Technology Services segment, which could transition stake in Mindtree. EBITDA growth 6%
with relative ease to a ‘work from home’ environment, grew
Shareholding in L&T Infrastructure PAT growth 10%
significantly, aided by the inclusion of revenues from an
Development Projects Ltd (L&T IDPL) was
acquisition made in FY20. Standalone Debt/Equity 0.49
diluted to 51% as Canadian Pension Plan
Going forward, L&T is confident that the contribution of the Investment Board obtained statutory Consolidated ROE 15%
services businesses will exceed 40% of Group turnover. approvals for conversion of the FCF (Rs bn) 28
Compulsorily Convertible Preference
The Financial Services business registered modest growth Order backlog (Rs bn) 3,039
Shares (CCPS) into a 49% equity stake in
while grappling with tight liquidity constraints, stoppage of L&T IDPL. L&T Shipbuilding Limited which Order inflow (Rs bn) 1,928
FY20
disbursements in end-March and the dominant risk-averse was a 100% subsidiary company was
sentiment of the lending community. The impact of the merged with L&T standalone entity. Also,
pandemic and additional provisions in the Financial Services during the year, L&T exited its
business led to a depressed RoE for FY20. shareholding in L&T Kobelco Machinery
L&T sees prospects in the areas of government buildings, by selling its stake to its JV partner Kobe
data centres, healthcare infrastructure, airports, metro Steel Ltd.
railways, water projects including wastewater treatment
and irrigation, hydel projects, expressways as well as
onshore and offshore hydrocarbon projects. It is, however,
uncertain of the timelines when these projects will take off.
The decline in revenues during FY21 was mainly due to the Secured multiple large and prestigious Revenue growth -7%
slowdown of project execution and manufacturing activity orders during the year, viz., the Mumbai-
EBITDA growth -7%
owing to lockdown-related disruptions in the first half of the Ahmedabad High Speed Rail (popularly
year. called the ‘Bullet Train’), a bridge across PAT growth -26%
the Brahmaputra in Assam as well as Standalone Debt/Equity 0.39
While the Middle East region has remained an area of focus,
EPCC packages for the Barmer Refinery in
the company has turned its attention to many countries in Consolidated ROE 16%
Rajasthan.
Africa as well as South-East Asia. Currently, the Middle East
region constitutes 61% of the international order book of Rs During the year, L&T concluded the FCF (Rs bn) 172
688bn. divestment of its Electrical & Automation Order backlog (Rs bn) 3,274
(E&A) business, including the sale of the
The new norms of social distancing, quarantine procedures integrated marine automation solutions Order inflow (Rs bn) 1,777
FY21
and safety protocols, coupled with supply chain disruptions, company, Servowatch Systems Limited.
continued to impact the project performance throughout
the year.
The interest expenses for FY21 increased sharply by 39.9%

due to the higher interest cost in the Hyderabad Metro upon
commencement of full operations and higher borrowings in
the parent entity, retained as a buffer to address
uncertainties emanating from the pandemic.
Builders to the Nation

Exhibit 23: L&T has constructed some of the most technologically complex projects in India across sectors
Exhibit 24: Apart from its prowess in the infrastructure segment, it has strong capabilities in the hydrocarbon sector
Exhibit 25: Has expanded outside India and made its presence felt in marquee jobs
Exhibit 26: Is one of the largest integrated E&C companies globally with capabilities across all segments of infrastructure/industrial capex
Exhibit 27: Has grown through need-based collaborations as per technological and geographical requirements
Investment Analysis
Infrastructure sector ordering is past its medium-term peak but book: bill
ratio at 3.6x is still robust
The infrastructure segment is the largest business segment for L&T, contributing
almost 45% to its FY21 revenues. As of Sep’21, L&T had an order backlog of Rs 3.3trn,
which is ~3.6x its core E&C revenues in FY21, thus providing reasonable revenue
visibility in the near-term.
We have argued earlier about an imminent slowdown in government-funded
infrastructure capex over FY21-26E as the government’s debt overhang is not transient
and may haunt till FY26E. We estimate combined (Center and States) government
infrastructure spending CAGR of 11.4% over FY21-26E (vs. 19.4% over FY13-19).
The slowdown directly impacts growth opportunities for L&T. For example, as of
Sep’21, the company carries 38% of its order backlog from states, 14% from centre
and 30% from PSUs.
Exhibit 28: Revenue share of infrastructure has risen to ~70% Exhibit 29: …with ~80% share in its order backlog
within L&T’s core E&C business…
Exhibit 30: >80% of order backlog is dependent on the central and Exhibit 31: …as contribution from the private sector orders is still
state governments… elusive
Exhibit 32: Heavy civil (metro/rail), water and T&D have been the key drivers of order
growth in the infrastructure segment over the years, while B&F has shrunk
Exhibit 33: Infrastructure segment order backlog growth has picked Exhibit 34: …while execution has been slow, this bodes well for an
up in the past 12 months execution pick up from hereon
Source: Bloomberg; Company, Systematix Institutional Research Source: Bloomberg; Company, Systematix Institutional Research
Revival in private capex cycle will be the key trigger but currently elusive
Without arguing about a case for private capex cycle revival, we highlight that L&T’s
dependence on private capex has reduced to the point that its revival or the lack of it
does not impact it much.
To illustrate (Exhibit 35), during FY06-11, the share of private capex in L&T’s annual
order inflow used to be 50-70%, with power and hydrocarbons being the largest
contributors and metals being the other important sector.
It is now a foregone conclusion that the power sector will not witness a capex boom
in the coal-fired category for the near future. Hydrocarbon has held on to its share in
the overall BSE500 capex but the long-term trajectory is still downward. The metal
sector as a share of L&T’s order inflow has now gone into oblivion.
Exhibit 35: Share of private capex used to be 50-70% in L&T orders until FY11
Sector-wise Order Inflows (Rs bn) FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13
Process 22 43 63 83 91 128 78 53
Oil & Gas 58 46 105 62 139 56 93 88
Power 22 37 59 130 230 255 148 264
Infrastructure 67 129 130 202 188 303 324 396
Overall core order inflow 170 254 357 477 647 742 643 801
% share in core order inflow FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13
Process 13% 17% 18% 17% 14% 17% 12% 7%
Oil & Gas 34% 18% 29% 13% 22% 8% 14% 11%
Power 13% 14% 16% 27% 35% 34% 23% 33%
Infrastructure 39% 51% 36% 42% 29% 41% 50% 49%
Share of ex-Infra orders (pvt capex) 61% 49% 64% 58% 71% 59% 50% 51%
Exhibit 36: Share of private capex is now down to ~20% in L&T orders
Sector-wise Order Inflows (Rs bn) FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
Process 30 60 37 40 25 40 60 75
Oil & Gas 90 90 104 185 158 279 210 177
Power 30 150 30 30 25 29 120 10
Infrastructure 810 720 748 690 755 927 1,004 1,002
Overall core order inflow 960 1,170 1,044 1,095 1,138 1,346 1,441 1,325
% share in core order inflow FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
Process 3% 5% 4% 4% 2% 3% 4% 6%
Oil & Gas 9% 8% 10% 17% 14% 21% 15% 13%
Power 3% 13% 3% 3% 2% 2% 8% 1%
Infrastructure 84% 62% 72% 63% 66% 69% 70% 76%
Share of ex-Infra orders (pvt capex) 16% 26% 16% 23% 18% 26% 27% 20%
Exhibit 37: Metals capex peaked in FY14 and has been declining Exhibit 38: …while hydrocarbon capex has been steadily improving
800 100% 1,400 100%

700 80% 1,200 80%
600 60% 1,000 60%
500
40% 800 40%
Rs bn
Rs bn
400
20% 600 20%
300
200 0% 400 0%
100 -20% 200 -20%
- -40% - -40%
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
Metals % y-y growth Linear (% y-y growth) Hydrocarbons % y-y growth Linear (% y-y growth)
Exhibit 39: Traditional power capex has already peaked Exhibit 40: Overall private capex has been in a long slowdown
700 100% 6,000 60%
600 80% 50%
5,000
500 60% 40%
4,000
400 40% 30%
Rs bn
Rs bn
3,000 20%
300 20%
10%
200 0% 2,000
0%
100 -20% 1,000
-10%
- -40% - -20%
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
Power % y-y growth Linear (% y-y growth) BSE 500 Capex % y-y growth Linear (% y-y growth)
Exhibit 41: Metals & Power now small in BSE500 capex share; Hydrocarbon has held on
30%
25%
20%
15%
10%
5%
0%
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
Metals Hydrocarbons Power
Production-linked incentive (PLI) schemes may not lead to an order inflow uptick for
L&T
The total proposed incentive under the production-linked-incentive scheme is pegged
at ~Rs 1.9trn over FY21 to FY25. The average incentive is 5%, implying a revenue target
of ~Rs 40trn by FY25.
Asset turnover for the various sectors varies significantly (for example, mobile phone
manufacturing may have an asset turnover of as high as 25-50xto as low as 2x). This
asset turnover would also include land costs in some instances.
In some sectors, given that the incentives are front-loaded, companies are expected
to import capital equipment (anecdotal evidence suggests that companies are even
airlifting equipment from abroad to fasten production), reducing the opportunity for
domestic players.
Nevertheless, we still assume an average 8x asset turnover for the sectors (see table
below), implying a total capex requirement of Rs 4.88trn over the next five years or Rs
975bn p.a.
Even in its core sectors such as process and hydrocarbons, at best L&T bags 10% of
overall capex by the sector historically. For sectors like mobiles or electronics as well
there is limited scope for L&T. Still, hoping for an optimistic 2-10% share across the
various sectors, we calculate Rs 241bn of potential revenue opportunity for L&T over
the next 5 years due to the PLI scheme. This does not encompass the substitution of
capex that would have anyway happened without PLI and will now be subsumed under
this benefit.
The incremental revenues for L&T’s core E&C business are thus ~4% on our FY23E
revenue. These orders will have better margins, working capital and execution cycle
and thus the PAT (core E&C) impact may be higher at ~5%.
We value the core E&C business at Rs 823/share and accordingly, the best-case upside
that we foresee from the PLI scheme for L&T is Rs 41/share.
Exhibit 42: Best-case potential from the PLI scheme for L&T will be Rs 241bn over 5 years, which is only 4% of its core E&C revenues
Incentives Revenue Asset L&T L&T revenue
Rs bn Capex
outlay potential turnover target share potential
Mobile Phones 420 10,500 25 420 2% 8
Advanced Chemistry Cell (ACC)
181 3,620 25 145 2% 3
Batteries
Electronics and Technology Products 50 1,000 25 40 2% 1
Automobiles and Auto Components 570 11,408 5 2,282 5% 114
Pharmaceuticals and Drugs 150 3,000 25 120 2% 2
Telecom and Networking Products 122 2,439 15 163 2% 3
Textiles Products 107 2,137 3 712 5% 36
Food Products 109 2,180 10 218 3% 7
High Efficiency Solar PV Modules 45 900 15 60 3% 2
White Goods 62 1,248 15 83 3% 2
Specialty Steel 63 1,264 2 632 10% 63
1,880 39,696 8.14 4,875 5.00% 241
Source: Company, Systematix Research
Despite our weak medium-term outlook on order inflow for L&T, execution push can
drive growth for the company along with select large order wins
In our base-case scenario, after factoring in a continued slowdown in execution due to
strained government finances, we estimate core E&C revenues to still deliver a CAGR
of 17.9% over FY21-23E.
Services revenue (31% of FY21 revenues) are expected to grow at a 20.7% CAGR over
the same timeline, leading to consolidated revenue growth of 18.1%.
Despite a weak margin trend in the past for the key infrastructure segment, we expect
margins to improve modestly by 50 bps to 9% in FY22 and remain stable at that level.
We thus estimate core E&C business EBITDA to grow at an 18.8% CAGR, while services
EBITDA is likely to grow at a 32.2% CAGR, leading to a consolidated EBIT CAGR of
23.4%.
L&T’s stringent focus on containing NWC levels is already visible in 1HFY22; we thus
expect NWC levels to fall to 23% from the FY21 peak of 26.8%. At 23%, NWC levels are
still high compared to L&T’s previous levels of 18-20% as recently as FY19.
Nevertheless, even if L&T can contain its NWC levels to 23% and grow revenues as per
our estimates, it should still be able to generate strong OCF/FCF over FY21-23E.
Together with the already visible debt reduction on the back of monetization of non-
core assets, this will aid in further interest cost saving; thus, we estimate core E&C PAT
to grow at a higher rate of 25% CAGR over FY21-23E (vs. revenue/EBITDA CAGR of
17.9%/18.8%), while consolidated PAT CAGR is estimated at 32.2%.
Revenue growth for the core E&C segment slowed due to its elongated execution
cycle; normalization began from FY18.
Over FY10-FY15, L&T witnessed a deceleration in the execution rate as it had an influx
of large orders in its Buildings & Factories (B&F) segment, which had a longer-than-
average execution cycle of approximately five years. This led to disappointing revenue
growth rates over subsequent years, together with a general slowdown in other
business segments as well as an economic slowdown.
As shown in Exhibit 43, L&T’s core E&C order inflow has remained stagnant for several
years now and YTDFY22 orders are still below the run-rate of the past few years.
Nevertheless, slower execution at the same time has meant that order backlog has
continued to grow (8% growth even in FY21 and 12% estimated in FY22).
Order backlog by itself is not much of a challenge for L&T. A stronger push on the
execution of the existing order backlog would help but much of it is also due to the
overall macroeconomic constraints impacting the execution rate.
Despite an overall weak outlook on infrastructure capex by the government, order
inflow will remain just enough to replenish revenues for that year and some more.
After FY15, B&F order inflow (a part of Urban Infra) began to decline. At the same time,
core EPC orders from transportation and water segments have increased, which have
a shorter execution cycle. Thus, the order mix has now turned favourable, leading to
a shorter execution cycle overall.
Historically, as shown in Exhibit 47, revenues grew in tandem with order backlog,
although with a lag of two years. However, this relationship came to a halt around
FY15 and the revenue growth rate fell much behind order backlog growth. This was
primarily due to the elongating execution cycle of the overall order backlog.
As highlighted in Exhibits 35 earlier, the elongated execution cycle was mostly due to
an increase in urban-infrastructure projects in the overall backlog. However, according
to our estimates, the share of urban-infrastructure (and other longer execution cycle
orders within transport IC) in the overall backlog peaked around FY17. As a result,
revenue growth is now gradually normalizing and set to mirror order backlog growth.
The COVID-19 pandemic impacted execution during the lockdown and after that as
social distancing and health norms followed by the company led to longer execution
timelines than earlier. Over a period, assuming economic conditions normalize, the
execution cycle should come back on track, driving better revenue booking for L&T
from FY21 lows.
Accordingly, we are now building in a 17.9% revenue (core E&C) CAGR over FY21-23E
for L&T, compared with 9.5% CAGR delivered over FY14-20. We estimate this
turnaround in revenue growth also to drive margins and FCF.
Exhibit 43: Core E&C orders to grow at a CAGR of 11% between FY21-23 vs. 6% between
FY14-20
Exhibit 44: Order backlog for L&T has continued to grow despite Exhibit 45: Overall book: bill ratio still healthy, while core E&C
slow order inflow growth book: bill ratio at 3.7x (TTM basis)
Exhibit 46: Infra segment book: bill has been stable while it has Exhibit 47: Order backlog growth has outpaced revenue growth
improved for the hydrocarbon segment
Exhibit 48: Average execution cycle of the existing orderbook has Exhibit 49: …Annual order inflow for key segments - infra and
elongated in recent times but still better than the FY12-13 peak hydrocarbon have replenished annual execution
Exhibit 50: Infra segment revenue growth should continue Exhibit 51: …while normalization of margins should help drive
on robust order backlog... EBITDA growth
1,000 30% 90 12.0%

900 25% 80
800 20% 10.0%
70
700 15%
60 8.0%
600 10%
50
Rs bn
Rs bn
500 5% 6.0%
400 0% 40
300 -5% 30 4.0%
200 -10% 20
2.0%
100 -15% 10
- -20% - 0.0%
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22E
FY23E
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22E
FY23E
Segment Revenue (Rs bn) % y-y revenue growth (RHS) Segment EBITDA (Rs bn) EBITDA Margin (%) (RHS)
Exhibit 52: Power segment has lost relevance in the overall mix.. Exhibit 53: …as both growth and profitability have shrunk sharply
80 50% 18 30.0%
70 40%
16
30% 25.0%
60 20% 14
50 10% 12 20.0%
0% 10
Rs bn
Rs bn
40 15.0%
-10% 8
30 -20%
6 10.0%
20 -30%
-40% 4
10 5.0%
-50% 2
- -60% - 0.0%
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22E
FY23E
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22E
FY23E
Segment Revenue (Rs bn) % y-y revenue growth (RHS) Segment EBITDA (Rs bn) EBITDA Margin (%) (RHS)
Exhibit 54: Heavy Engineering segment is looking up since FY18 Exhibit 55: …and also enjoys strong margins
Exhibit 56: Despite weak oil prices in the past, strong order Exhibit 57: …Rising capability and order wins in the hydrocarbon
backlog in the hydrocarbon segment helped L&T maintain segment now also reflecting in its improving margin profile
steady growth; rising oil to provide an upside
Exhibit 58: ‘Others’ segment is now primarily dependent on L&T’s Exhibit 59: …margin profile for ‘Others’ is strong due to the
realty segment completions… contribution from the realty segment
Exhibit 60: Core E&C revenue growth to mirror industry growth Exhibit 61: …while core E&C margins should do better on
improving trends and mix
Exhibit 62: Core E&C revenue growth trajectory is already Exhibit 63: …and so is the EBITDA trend
improving though on a lower base
International orders have been stagnant and primarily driven by roads and B&F
In the past decade, L&T ventured into the international markets, primarily the Middle
East, South East Asia, SAARC and Africa, with a focus on hydrocarbon and
infrastructure orders. While its initial entry into these markets was not very
encouraging, as it suffered a significant loss in FY15 in the hydrocarbon projects it took
up in the Middle East, corrective actions have enabled it to return to a profitable trend.
~20-30% of L&T’s annual order inflows in the infrastructure segment have come from
the international markets. While the base orders from these markets have been for
roads, buildings & factories and power T&D, where L&T enjoys strong competence,
occasionally there have been large ticket orders in the metro segment as well, such as
Riyadh metro and Doha metro projects.
Unfortunately, most of these markets went into an ordering slowdown after the oil
price meltdown, at least for the large ticket B&F (Buildings & Factories) and metro/rail
projects. Similarly, hydrocarbon orders have been slow post FY19. With oil prices now
looking up, there is a case for the international segment to pick up for L&T as and when
ordering revives in these markets.
Exhibit 64: International order inflow has been lumpy; not grown since FY15
The rise of the service businesses – Tech and Finance

subsidiaries now contribute to over 50% of L&T’s value
L&T has swiftly and successfully transformed into a services-driven conglomerate
with tech and finance subsidiaries contributing to over 50% of its EBITDA and value
On the back of both organic and inorganic growth routes, L&T has, over the past two
decades, seeded strong technology and financial services businesses through
individually managed teams.
While the journey has been full of hiccups, especially for the financial services arm, the
technological verticals have exploded in growth and profitability over the past three
years.
The revenue contribution from these businesses to L&T has been gradually rising but
is still likely to be under 30% as of FY23E. However, the EBITDA contribution is likely
reaching 50% now, while over 55% of the overall value in our SoTP for L&T is driven by
the tech and finance subsidiaries.
In fact, since Mar’19, L&T’s share price has been driven more by the value creation
due to the technology services businesses than by the core E&C vertical. During this
period, while core E&C value has gone down, the value of tech subsidiaries has jumped
4x.
<50% of L&T’s share price is attributable to the core E&C business as against 75% as of
Mar’19. Thus, L&T is as much a play on its tech subsidiaries now as it is on the
investment cycle in India.
Exhibit 65: Core E&C value has declined in the past 2.5 years, while tech businesses have
created value for L&T shareholders
Exhibit 66: Tech and finance subsidiaries now account for ~30% Exhibit 67: …and all set to contribute to ~50% of consolidated
of consolidated revenues EBITDA
Exhibit 68: …Bulk of the consolidated operating cash flow (OCF) Exhibit 69: …as standalone OCF has averaged only around 40%
driven by tech subsidiaries
Technology businesses have positively surprised L&T investors and necessitate a

holistic view of the company as a services conglomerate against just an
infrastructure major.
Exhibit 70: IT&TS have driven overall growth for L&T Exhibit 71: …delivering 21% organic EBITDA CAGR over FY15-19;
in recent years likely to deliver similar growth over FY21-23E
Exhibit 72: L&T Infotech (LTI) business snapshot
LTI (USD 1.75bn TTM revenues)
High-tech, media &
Energy & CPG, retail and
Vertical BFSI Insurance Manufacturing entertainment and
Utilities Pharma
Others
TTM Revenues (USD mn) 540.8 262.5 283.5 169.8 190.8 302.8
Revenue mix 31% 15% 16% 10% 11% 17%
CAGR (FY17-21) 18.5% 6.1% 11.7% 11.9% 24.3% 19.3%
Cloud
Enterprise Analytics, AI &
Product/service wise mix ADM & testing Infrastructure & EI/Mobility
solutions Cognitive
security
TTM Revenues (USD mn) 598.5 547.8 257.3 197.8 148.8
Revenue mix 34% 31% 15% 11% 9%
Exhibit 73: LTI has delivered 13.5% constant currency revenue Exhibit 74: …thus driving a strong 18% PAT CAGR
CAGR over FY16-21 with an improving margin trend
Exhibit 75: LTTS business transformation
Exhibit 76: LTTS has rapidly transformed into a high-tech play, Exhibit 77: Diversified sector revenue mix for LTTS
leveraging the sector tailwinds
Exhibit 78: LTTS has delivered a 10% CAGR in organic revenue Exhibit 79: …which reflects in a similar trajectory in PAT
over FY16-21
Exhibit 80: Mindtree business snapshot – acquired in 2019

Mindtree (USD 1.08bn FY21 revenues)
CPG, retail and
Vertical High-tech and media BFSI Travel & hospitality
manufacturing
TTM Revenues (USD mn) 540.0 211.7 232.2 95.0
Revenue mix 50% 20% 22% 9%
CAGR (FY17-21) 17.2% 2.5% 5.7% -4.7%
Exhibit 81: Mindtree is a strong addition to L&T’s portfolio Exhibit 82: …with heavy dependence on high-tech business
Exhibit 83: Even as Mindtree revenues have grown at a 9% CAGR Exhibit 84: …PAT has grown at a 12% rate owing to strong margin
over FY16-21… tailwinds
Exhibit 85: Financial services business too has been a key growth Exhibit 86: …but has faced headwinds recently, in-line with the
driver in the past rest of the NBFC sector
Financial and cash-flow analysis

Base case RoE to inch up to ~15% by FY23E, slightly offset by the Hyderabad metro
impact
L&T’s consolidated RoE has improved from <10% in FY16 to about 13.8% in FY19. L&T
was on track for further improvement by FY21, closer towards 18% levels, but COVID-
19-related disruptions have pushed this recovery forward. We estimate RoE to
improve to ~15% by FY23E. This is lower than the management’s long-term range of
18% primarily due to higher losses on Hyderabad metro.
Our estimated RoE improvement is without factoring in further divestments and share
buyback. This is despite building in significant losses from the Hyderabad metro
project over FY21-23E as it is now fully commissioned.
DuPont analysis: Asset-heavy strategy was the key cause for lower RoEs
While RoE for L&T on a consolidated basis more than halved from FY10 levels, our five-
factor DuPont analysis suggests that this was largely due to higher interest impact,
lower asset utilization and falling EBIT margins – most of which are now behind the
company (we expect EBIT margins to recover as execution ramps up).
Operating cash flow (OCF) impacted by working capital build-up
Operating cash flow (excluding finance) declined from FY11 until FY14 due to a
continued build-up in working capital. However, L&T’s efforts to contain the working
capital have led to a strong pick-up in the OCF (excluding finance) generation since
FY15. We expect the OCF generation to remain strong given the continued focus on
working capital containment.
High capital intensity phase now over
L&T was engaged in a highly capex-intensive phase after FY10 as it focused on an asset
ownership model. The capex intensity peaked in FY13 and has seen a downtrend since
then. With further completion of major projects such as the Hyderabad Metro, we
expect the capital intensity to fall further. Together with planned asset/stake sales in
non-core businesses (already evident since FY17), we expect this to reflect in improved
cash flows.
Operating cash flows expected to improve again
Given an increase in revenue and improving margins, we expect net income to grow
at a ~32% CAGR over FY21-23E, which should be ahead of the sales CAGR of 18.1%
during the same period. Further, with a continued focus on working capital, we expect
cash flows (excluding loans and advances for financial activities) to improve
significantly.
At the reporting level, OCF may appear negative as loans and advances necessary for
the growth of the financial services segment are likely to distort the outcome.
However, we estimate OCF, excluding loans and advances for financial activities, to be
significantly positive over FY21-23E.
Exhibit 87: OCF/FCF has been improving
Exhibit 88: Improvement in NWC in the past 2-3 quarters… Exhibit 89: …is the key reason for OCF improvement
Exhibit 90: Key assumptions

Rs bn FY18 FY19 FY20 FY21 FY22E FY23E
Core order inflow 1,013 1,336 1,403 1,275 1,421 1,577
Core E&C revenue growth 17% 15% 1% -11% 19% 17%
Order book 2,631 2,934 3,039 3,274 3,651 4,009
Core E&C execution cycle (%) 35% 42% 34% 29% 33% 35%
Core E&C Book:bill (x) 2.76 2.92 3.03 3.58 3.37 3.18
Valuation & view

L&T is as much a play on the infrastructure business as it is now an alternative way
of playing the growth in its tech subsidiaries
We value L&T on a sum-of-the-parts (SOTP) basis –
1) We value its listed subsidiaries at mark-to-market of the current market
capitalization and adjust for proportionate holding by L&T.
2) We assign a 20% holdco discount for the listed companies’ MTM valuation.
3) We value the core E&C business at a FY24E P/E of 16x, which is justified given the
sustainable growth forecast of 9% and core RoE of ~20%.
4) EPC players trade at a wide valuation range over the cycle due to their volatile
order backlog growth and margin/OCF generation. The valuation range can be as
wide as 5-20x depending on the company profile based on these parameters.
However, L&T scores better as compared to peers on size, sustainability, cash
generation and leverage and hence deserves to trade at the higher end of that
valuation range.
Accordingly, we derive a fair value of Rs 2,287/share for L&T, suggesting an upside
of 23% from the current levels.
Exhibit 91: SoTP valuation yields a fair value of Rs 2,287/share
L&T value
FY23E PAT Equity value L&T value
P/E (x) Stake per share
(Rs bn) (Rs bn) (Rs bn)
(Rs)
L&T Core E&C 95.1 16x 1,522 100.0% 1,5220 1,084
L&T Finance 207 63.5% 131 93
L&T Infotech 1,301 74.1% 964 686
LTTS 602 74.2% 447 318
Mindtree 814 61.0% 497 354
BOT Assets value 52
Total subsidiaries value after 20% holding discount 1,203
L&T fair value 2,287
The stock performance is attributable to the re-rating of its tech subsidiaries

L&T’s core E&C business has not re-rated even after significant improvements in
growth and RoE metrics since early 2016. It continues to hover around its long-term
mean of 14-15x one-year forward P/E for the last three years. This is despite its RoE
having already improved about 400bps from the FY16 lows, while core E&C business
growth has also revived from low single-digits to mid-teens.
The outlook looks much better, thanks to a stronger balance sheet, management
credentials and efforts to boost shareholder value.
Essentially, the stock has only tracked the re-rating of its tech subsidiaries over the
past year, with the core E&C value declining. In contrast, its peer group has seen
multiples expand.
Key risks & risk mitigating measures

Rising competition in infrastructure orders
Over the years, infrastructure projects, especially road EPC business, have attracted
significant competition with several regional players vying for orders. However, L&T
has been selective in its bid strategy and opted to stay focused on its core areas of
large and complex projects. It has also diversified into opportunistic growth areas such
as water supply and irrigation projects when these segments are growing fast.
Commodity price risk
Steel and cement prices have run up sharply over the past year, exposing all
infrastructure EPC players to cost escalation. While government EPC contracts tend to
have a price variation clause covering most such cost increases, not all the increase
may be passed through. In the near-term, this may thus pose margin risks for L&T and
other EPC players. In the longer term, however, new bids would ideally bake in such
as cost escalations, nullifying the higher cost.
Continued challenges on execution due to macro risks
Land acquisition for most infrastructure projects is a critical factor. There are often
delays in handing over encumbrance-free land and Right of Way, impacting the
progress of work and idling of resources. Commercial terms in the business are getting
tougher, resulting in working capital pressures. The infrastructure sector is also
exposed to delays in various approvals, leading to a domino effect. Extreme
environmental events (such as unprecedented rainfall), National Green Tribunal bans
and construction bans due to pollution pose an adverse risk to the business.
Working capital strategy dependent on government finances
Though some projects secured are funded through Union and State budgetary
allocations, payment terms continue to pose working capital challenges. Projects with
certain state authorities need close monitoring due to delays in handing over of sites,
delays in certifications due to the involvement of multiple agencies and the challenges
faced in timely budgetary allocations.
Litigation
There are no major litigations that L&T is involved in apart from some smaller cases
which are part of the ‘business as usual’ scenario. As of FY20, it had provided about Rs
2.14bn as cost in its P&L towards litigation-related obligations, which is a minuscule
amount considering its revenue.
Some of the important pending disputes though where clarity is awaited are – The
Hyderabad metro project where the alignment was changed by the state government;
clarity on compensation for L&T due to the same is awaited. The Mumbai monorail
project was deferred significantly due to delays in land acquisition and approvals,
leading to cost overruns.
Views on ESG
Infrastructure construction as a business is bound to involve methods and processes
that impact the environment and natural resources. It also involves working with
government departments/ministries; in the past, L&T was barred from World Bank-
funded projects (for an incident in 2005, which led to a 6 months debarment for L&T
from participating in World Bank-funded projects). The company also manufactures
defence equipment (including weapons) for India as well as for export purposes.
Environment protection and the conservation of natural resources are part of L&T’s
business philosophy. The company’s Corporate Environment, Health & Safety (EHS)
Policy emphasizes on incorporating environmental consideration into all business
processes. A separate Code of Conduct has been extended to vendors and service
providers. L&T continues to conduct water assessment surveys at its campuses. All 24
campuses maintained their ‘Water Positive’ status in FY20-21.
L&T also invests in lower emission and clean energy programmes, thus promoting
sustainable growth. Renewable energy at manufacturing campuses is utilized,
wherever feasible. Currently, eight campuses are sourcing renewable energy (wind
and solar) from external sources and all 24 campuses are generating renewable energy
onsite.
The company has established systems and procedures to ensure that its Board of
Directors is well informed and well equipped to fulfil its overall responsibilities and to
provide the management with the strategic direction needed to create long term
shareholder value. The four-tier governance structure, besides ensuring greater
management accountability and credibility, facilitates increased autonomy to the
businesses, performance discipline and development of business leaders, leading to
increased public confidence.
FINANCIALS (CONSOLIDATED)
Profit & Loss Statement Balance Sheet
YE: Mar (Rs mn) FY20 FY21 FY22E FY23E FY24E YE: Mar (Rs mn) FY20 FY21 FY22E FY23E FY24E
Net sales 1,455 1,360 1,626 1,896 2,110 Cash & bank balance 151 162 250 284 321
RM expenses -840 -737 -1,042 -1,231 -1,373 Debtors 407 422 482 542 585
Gross Profit 614 623 584 665 737 Inventory 57 58 66 74 81
Employee expenses -231 -248 -285 -313 -345 Loans & advances 1,032 963 1,101 1,286 1,465
Other expenses -220 -219 -102 -112 -124 Other current assets 681 636 735 833 868
EBITDA 163 156 197 240 269 Total current assets 2,329 2,241 2,634 3,018 3,320
Margin % 11.2% 11.5% 12.1% 12.6% 12.7% Investments 238 433 433 433 433
Depreciation -25 -29 -30 -31 -32 Net fixed assets 396 331 337 334 331
EBIT 139 127 167 209 236 Goodwill 80 81 81 81 81
Interest expenses -28 -39 -36 -35 -32 Total assets 3,043 3,086 3,485 3,866 4,165
Other Income 24 34 31 35 34 Current liabilities 780 780 908 1,032 1,059
Pre-tax profit 134 122 162 208 238 Provisions 35 38 40 47 52
Taxes -33 -40 -44 -55 -63 Total current liabilities 814 818 948 1,079 1,111
PAT 102 82 118 153 175 Borrowings 1,490 1,404 1,576 1,704 1,829
Margin % 7.0% 6.0% 7.3% 8.1% 8.3% Net Deferred Tax liability (24) (15) (15) (15) (15)
Share in profit/loss from JVs 1 0 2 4 4 Total liabilities 2,280 2,207 2,509 2,767 2,925
Minority Interest -13 -13 -21 -26 -29 Paid-up capital 3 3 3 3 3
Recurring PAT 89 69 100 132 150 Reserves & surplus 664 756 831 929 1,041
Non-recurring Items 7 47 0 0 0 Net Worth 667 759 834 932 1,044
Reported PAT 95 116 100 132 150 Minority Interest 95 121 141 167 196
Recurring EPS (Rs) 63.4 49.1 71.0 93.6 107.0 Total equity & liabilities 3,043 3,086 3,485 3,866 4,165
Cash EPS (Rs) 80.9 69.8 92.2 115.7 129.9 Book Value/share (Rs) 475.3 540.2 593.9 663.6 743.2
DPS (Rs) 28.0 35.0 32.0 42.1 48.1 Source: Company, Systematix Institutional Research
Cash Flow Ratios
YE: Mar (Rs mn) FY20 FY21 FY22E FY23E FY24E YE: Mar FY20 FY21 FY22E FY23E FY24E
Pre-tax profit 143 195 118 153 175 P/E (x) 29.5 38.0 26.3 19.9 17.4
Depreciation 25 29 30 31 32 P/BV (x) 3.9 3.5 3.1 2.8 2.5
Chg in working capital -92 90 -170 -215 -228 EV/EBITDA (x) 16.0 16.8 13.3 10.9 9.8
Other non-cash items 17 -60 -31 -35 -34 EV/Sales (x) 1.8 1.9 1.6 1.4 1.2
Total tax paid -40 -35 0 0 0 Dividend Yield (%) 1.5% 1.9% 1.7% 2.3% 2.6%
Operating Cash Flow 53 218 -54 -66 -54 RoE (%) 13.8% 9.7% 12.5% 14.9% 15.2%
Capital expenditure -151 -38 -35 -29 -29 RoCE (%) 7.7% 7.2% 8.3% 9.1% 9.3%
Free Cash Flow -98 180 -89 -94 -83
Investments 43 -166 0 0 0 Fixed Asset turnover (x) 3.7 4.1 4.8 5.7 6.4
Other investing Cash flow 25 150 26 30 30 Receivable days 102 113 108 104 101
Investing Cash Flow -83 -54 -9 1 1 Inventory days 25 29 23 22 22
Equity raised 0 0 0 0 0 Payable days 190 225 182 172 148
Debt raised/(repaid) 141 -87 172 127 125 Working Capital Cycle (days) 90 86 81 77 79
Dividend (incl. tax) -46 -40 -45 -59 -68
Other Financing Cash Flow -32 -26 23 29 33 Revenue Growth (%) 8% -7% 20% 17% 11%
Financing Cash Flow 64 -153 150 97 91 EBITDA Growth (%) 7% -4% 26% 22% 12%
Net chg in cash 34 11 88 33 38 EPS Growth, % 10% -28% 45% 32% 14%
Opening cash balance 117 151 162 250 284
Closing cash balance 151 162 250 284 321 Net Debt/Equity (x) 2.0 1.6 1.6 1.5 1.4
Mkt Cap 2,620 2,621 2,621 2,621 2,621 Net Debt/EBITDA (x) 8.2 7.9 6.7 5.9 5.6
Net Debt 1,339 1,241 1,326 1,420 1,507 Source: Company, Systematix Institutional Research
EV 3,958 3,862 3,947 4,041 4,128
# of shares 1,404 1,405 1,405 1,405 1,405
Systematix
NCC Limited 20 December 2021
Strong order backlog and balance sheet to revive growth

INITIATING COVERAGE NCC Limited (NJCC) is among India's largest construction companies after L&T and
has a presence across geographies with EPC capabilities spanning infrastructure
Sector: Infrastructure Rating: BUY and private capex. Unlike many of its peers, it has witnessed several economic
CMP: Rs 75 Target Price: Rs 132 cycles and survived the ‘04-10 cycle aftermath. It has repaired its balance sheet
with a standalone D/E of just 0.25x in FY21 and should be almost debt-free at the
Stock Info standalone level by FY24. In a bid to improve its balance sheet, the company has
Sensex/Nifty 58,117/ 17,325
trodden a cautious path of order accretion and escaped equity exposure on asset-
Bloomberg NJCC IN
heavy projects, resulting in a relatively slow but steady revenue/EBITDA growth.
Equity shares (mn) 610
52-wk High/Low Rs 100/ Rs 47
Amongst the listed peers, it has the largest order book after L&T (Rs 390bn as of
Face value Rs 2 Sep’21, 4.5x TTM book: bill), which provides strong revenue growth visibility. We
M-Cap Rs 46bn/ USD 0.6bn estimate a PAT CAGR of ~33% over FY21-24E, even as it trades at just 8.7x FY23E
3-m Avg traded value USD 3mn P/E. We initiate coverage on the stock with a BUY rating and a target price of Rs
132 (75% upside).
Financial Snapshot (Rs bn) Strong order book provides revenue growth visibility
NJCC is among India’s few EPC players that can undertake complex projects across
Revenue 92.5 105.8 117.3
EBITDA 10.3 12.2 13.5
the country and various EPC segments. It also stands out with a strong order book of
PAT 3.9 5.3 6.2 Rs 390bn (4.5x book: bill), which provides revenue visibility over FY22-24E. On the
EPS (Rs) 6.4 8.7 10.1 back of its strong order backlog, we estimate NJCC to deliver a PAT CAGR of ~33%
RoE % 7.0% 8.9% 9.6% over FY21-24E.
RoCE % 9.8% 11.6% 12.7% Likely to reach a debt-free position at the standalone level by FY24
P/E (x) 11.7 8.7 7.4
P/BV (x) 0.8 0.7 0.7 While the company went overboard in the previous cycle with its exposure to asset-
heavy infrastructure projects and real-estate (in India and outside), it has shifted
Shareholding pattern (%) focus back on the core EPC business with an asset-light approach. This has yielded
Jun'21 Mar'21 Dec'20 results with its net D/E as of FY21 shrinking to a healthy level of 0.25x; it also
Promoter 19.7 19.7 19.7 generated positive OCF/FCF (net of finance cost) in FY20/21. The company is likely to
–Pledged 3.4 3.3 4.0 be almost debt-free at the standalone level by FY24.
FII 13.3 13.4 13.1 Consistently monetizing loans to subsidiaries
DII 11.5 12.2 12.2
Others 55.5 54.8 55.0 Over the past decade, NJCC has monetized its investments and loans/advances given
to its subsidiaries. Its total exposure to subsidiaries (through direct equity
Stock Performance (1-year) investments and loans/advances) has come down to Rs 15bn as of Sep’21 from the
peak of Rs 25bn in FY15. The remaining amount is expected to be monetized
180
gradually over the next 3-4 years; we are only factoring in Rs 6.4bn (Rs 10.5/share)
160 out of this in our SoTP.
140
Outlook and valuations
120
We value the company at 12x FY24E EPS and add 0.5x BV for its investments in its
100
subsidiaries (mostly road concessions and real-estate or landholdings) to arrive at
80 our target price of Rs 132. We prefer a valuation range of 10-18x P/E for the sector,
60 with NJCC landing in the middle of the band due to a weaker past track record of
Aug-21
Mar-21
Sep-21
Feb-21
Apr-21
Nov-21
Dec-20
Jan-21
Jul-21
Dec-21
May-21
Jun-21
Oct-21
cash generation and leverage, partly compensated by the improvements it has made.
Better than expected execution and OCF/FCF conversion will be key upside triggers.
NJCC SENSEX
Key risks
1) Rising competition in EPC contracts; 2) Delayed payments by government entities,
Amar Kedia leading to NWC (net working capital) elongation; 3) Margin impact due to the recent
amarkedia@systematixgroup.in sharp commodity price rise; and 4) low promoter shareholding and history of high
+91 22 6619 8084
share pledge (though now down to 17.2% of shares held).
20 December 2021 NCC Limited
Story in charts
Exhibit 1: Debt piled up in the last capex cycle as NJCC expanded Exhibit 2: …post FY14, a concerted effort towards debt reduction
across newer geographies and asset-heavy businesses.. has been paying off well
30 4
30 4
4
25 4
25
3 3
20 20
3 3
15 2 15 2
2 2
10 10
1 1
5 5
1 1
- - - -
FY02
FY04
FY03
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22E
FY23E
FY24E
Net debt (Rs bn) Interest cost net off other income (Rs bn) (RHS) Net debt (Rs bn) Interest cost net off other income (Rs bn) (RHS)
Exhibit 3: NWC cycle improving (except for temporary COVID-19 related disruptions)
after a serious deterioration post FY08
15,000 250
200
10,000
150
5,000 100
50
0 0
-50
-5,000
-100
-10,000 -150
Change in NWC (Rs mn) OCF (Rs mn) Working Capital Days (RHS)
Exhibit 4: Strong order backlog growth since FY18 despite the 2019 order cancellation
setback
4,00,000 6
3,50,000
5
3,00,000
4
2,50,000
Rs mn
(x)
2,00,000 3
1,50,000
2
1,00,000
1
50,000
- 0
FY13
FY16
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY14
FY15
FY17
FY18
FY19
FY20
FY21
Buildings Roads
Water Irrigation/Hydro
Orderbook to sales (RHS)
Exhibit 5: Revenue growth should ultimately follow its order Exhibit 6: Despite commodity impact, EBITDA growth should be
backlog growth over FY22-25E healthy on account of strong revenue growth
140 0.8 16 14
120 14 12
0.6
100 12
10
0.4
10
80 8
0.2 8
60 6
6
0
40 4
4
20 -0.2 2
2
0 -0.4 0 0
FY12
FY14
FY13
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22E
FY23E
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22E
FY23E
Revenue (Rs bn) Revenue Growth (%) (RHS) EBITDA (Rs bn) EBITDA % (RHS)
Exhibit 7: Improvement in execution, subsidiary investment Exhibit 8: OCF and FCF generation to get a boost (Rs bn)
monetization and NWC reduction has led to better RoCE
16 10
14 8
12 6
10 4
8 2
-
6
(2)
4
(4)
2
(6)
0
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22E
FY23E
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22E FY23E
RoE (%) RoCE (%) OCF - Net Interest Expense (Rs bn) FCF - Net Interest Expense (Rs bn)
Exhibit 9: Concerns over low promoter shareholding and share Exhibit 10: Promoter pledge inversely correlated to NJCC’s
pledge have abated share price in the past
70%
(%)
60% 70.0% 140.00
50% 60.0% 120.00
50.0% 100.00
40%
40.0% 80.00
30%
30.0% 60.00
20%
20.0% 40.00
10%
10.0% 20.00
0%
0.0% -
Mar-05
Mar-02
Sep-03
Sep-06
Mar-08
Sep-09
Mar-11
Sep-12
Mar-14
Sep-15
Mar-17
Sep-18
Mar-20
Sep-21
Sep-11
Mar-15
Mar-19
Mar-09
Sep-09
Mar-10
Sep-10
Mar-11
Mar-12
Sep-12
Mar-13
Sep-13
Mar-14
Sep-14
Sep-15
Mar-16
Sep-16
Mar-17
Sep-17
Mar-18
Sep-18
Sep-19
Mar-20
Sep-20
Mar-21
Sep-21
Promoter holding % Shares pledged as % of promoter holding Shares pledged as % of promoter holding Share price (Rs) - RHS
Source: BSE, Systematix Institutional Research Source: BSE, Bloomberg, Systematix Institutional Research
Company background
NJCC is one of India’s largest listed construction companies in terms of revenue and
has a pan-India focus with capabilities across most EPC sub-segments. It has a well-
diversified order book with a presence across segments such as buildings & housing,
roads, water & environment, irrigation, electrical, metals, mining and railways.
It has offices across 13 cities in the key states of Maharashtra, Andhra Pradesh,
Telangana, Karnataka, Gujarat, Uttar Pradesh, West Bengal, Tamil Nadu and an
experienced management team supported by a skilled workforce that includes 5,007
employees (including 3,311 Technical) executing around 120 active sites at various
locations (as on Jun-21).
The company was set up in 1978 as a partnership firm and listed in 1992. It achieved
its peak turnover of Rs 120bn in FY19. At a consolidated level, the bulk of the
business is accounted for in its parent entity (91%), while the remaining 9% of the
revenues is through its subsidiaries that are into road BOT projects and real estate.
It started its journey as Nagarjuna Construction Company Limited. It started as a pure
EPC focused company, and it expanded into several asset-heavy businesses such as
infrastructure BOT, Realty and International businesses over the years.
NJCC offers services that cut across multiple divisions to address the various facets of
infrastructure needs. It has forayed into new divisions by leveraging insights from
over four decades of experience in the construction business. It has largely been able
to complete projects on time and has earned respect for its brand among customers,
financial institutions and associates.
Its journey to date has been very challenging with several business and economic
cycles in the interim. It is one of the few companies apart from L&T that have
survived these cycles and their financial impact.
Key management team

Exhibit 11: NJCC – Board of Directors
Padma Shri Awardee Dr A V S Raju Chairman Emeritus
Board of Directors
Mr. Hemant M Nerurkar Chairman - Independent
Ms. Renu Challu Independent Director
Dr A S Durga Prasad Independent Director
Mr. O P Jagetiya Independent Director
Mr. Utpal Hemendra Sheth Director
Mr. A A V Ranga Raju Managing Director
Mr. A G K Raju Executive Director
Mr. A S N Raju Whole time Director
Mr. A V N Raju Whole time Director
Mr. J V Ranga Raju Whole time Director
Exhibit 12: NJCC - Key milestones Exhibit 13: Group structure
Turnover crosses Rs 120bn

2019 Orderbook crosses Rs 410bn
2017 Secured 1st MDO order
2012 Orderbook crosses Rs 200bn
2005 Turnover crosses Rs 10bn
2002 ISO 9001:2000 certified
1995 Turnover crosses Rs 1bn
1992 Initial Public Offering
1990 Converted to Public Ltd company
1978 Set up as a partnership firm
Exhibit 14: Key segments that NJCC operates in
Exhibit 15: Ability to win and execute large projects pan-India and across verticals
Ability to win large projects
Project Name Sector Location Value (Rs mn)
State water & Sanitation Mission Govt of UP Water & Environment 10 Districts of UP 82,550
AIIMS Buildings & Housing 4 locations 37,170
Nagpur Mumbai express way Roads Maharashtra 28,500
Project Seabird (2 projects) (Seabird project Phase 2A Karwar) Buildings & Housing Karnataka 24,420
APTIDCO Buildings & Housing 2 Locations 17,890
AAI Buildings & Housing 3 locations 16,930
Agra Lucknow Expressway Roads Uttar Pradesh 15,600
TDWSP – RR Water & Environment Ranga Reddy District 15,170
Sauniyojana L-3 Phase 1 and 2 Water & Environment 2 Locations 12,470
Namami Gange & Rural Water Supply Water & Environment Mirzapur & Jhansi 10,840
Lift Irrigation Project (PRLIS) Irrigation Telangana 10,080
MMRDA Mumbai metro Buildings & Housing Mumbai 8,570
NBCC KIDWAI NAGAR Buildings & Housing New Delhi 6,980
Concerns over low promoter shareholding and high share pledge levels abating
One of the key overhangs for the stock has been the low promoter shareholding and
high share pledge levels. We note that the promoter shareholding has now stabilized
and they have even raised their stake modestly from 18.1% in Mar’19 to 19.7% as of
Sep’21. Share pledge level has also reduced significantly over the years and was
down to 17.2% as of Sep’21 from a high of 60.1% in Mar’13.
Exhibit 16: Concerns over low promoter shareholding and rising Exhibit 17: Promoter pledge inversely correlated to NJCC’s
share pledges abating share price in the past
70%
(%)
60% 70.0% 140.00
60.0% 120.00
50%
50.0% 100.00
40%
40.0% 80.00
30%
30.0% 60.00
20%
20.0% 40.00
10%
10.0% 20.00
0% 0.0% -
Mar-05
Mar-02
Sep-03
Sep-06
Mar-08
Sep-09
Mar-11
Sep-12
Mar-14
Sep-15
Mar-17
Sep-18
Mar-20
Sep-21
Sep-11
Mar-15
Mar-19
Mar-09
Sep-09
Mar-10
Sep-10
Mar-11
Mar-12
Sep-12
Mar-13
Sep-13
Mar-14
Sep-14
Sep-15
Mar-16
Sep-16
Mar-17
Sep-17
Mar-18
Sep-18
Sep-19
Mar-20
Sep-20
Mar-21
Sep-21
Promoter holding % Shares pledged as % of promoter holding Shares pledged as % of promoter holding Share price (Rs) - RHS
Source: BSE, Systematix Institutional Research Source: BSE, Bloomberg, Systematix Institutional Research
Annual Report Analysis

Exhibit 18: NJCC – Annual Report Analysis
Year Demand scenario & Outlook Key events Key performance indicators
During the year (and in FY16), the company Revenue growth 71%
monetized several of its investments via the
EBITDA growth 50%
subsidiaries such as - Himachal Sorang Hydel Project,
Loans and advances to group companies also PAT growth 4%
stake sale in Coal-based Thermal Power Project to
reduced to Rs 5.58bn in FY17 compared to Rs
Sembcorp and two road assets — Western UP and Debt/Equity 0.12
FY17 11.22 bn in FY16.
Bengaluru Elevated Tollway — thereby managing to
ROE 21%
slash a significant portion of the debt in the
consolidated balance sheet. FCF (Rs mn) 1,700
Order backlog (Rs mn) 37,689
Order inflow (Rs mn) 18,400
The company launched a QIP issue, raising Rs Revenue growth 25%
FY18 was the best-ever year for NJCC in terms of its
5.5bn in the process and thus helping the
order inflow at Rs 253bn (almost 3x of FY17 inflow EBITDA growth 67%
company reduce its net D/E to 0.29x in
levels) driven by buildings, roads and water segments. PAT growth 62%
Mar’18 from 0.43x as of Mar’17.
Despite the strong order inflow and execution, FY18 NJCC also issued warrants worth Rs 1.1bn to Debt/Equity 0.15
FY18
witnessed significant working capital stress (inched the promoters to raise Rs 11bn subsequently. ROE 27%
up to a peak of 166 days). FCF (Rs mn) (680)
Its debtor collection days improved substantially from Revenue growth 11%
FY19 was the best-ever year for NJCC as it
102 days in FY18 to 84 days in FY19. Net working EBITDA growth 11%
reached a peak turnover of ~Rs 120bn and an
capital days improved to 96 days from 129 days in
order backlog of ~Rs 410bn led by significant PAT growth -2%
FY18. Finance cost reduced to Rs 4.51bn (3.7% of
tailwinds in the sector and chunky order wins Debt/Equity 0.16
turnover as against 4.9% of the turnover in FY18). Its
FY19 across sub-segments.
overall investments in subsidiaries and group ROE 21%
companies have come down from Rs 10.24bn in FY18
FCF (Rs mn) 330
to Rs 9.19bn. The year also witnessed asset
rationalization by subsidiaries; receivables from them Order backlog (Rs mn) 65,000
to the parent company improved. Order inflow (Rs mn) 37,312
The year had a significant impact on NJCC as the Revenue growth 5%
NJCC issued and allotted 9.2mn equity shares
change in the Andhra Pradesh government at the EBITDA growth 14%
at a price of Rs 119.37 per share against share
start of FY20 led to significant disruption on its order
warrants issued on a preferential basis to the PAT growth -11%
backlog and execution & payments. NJCC had to
company’s promoters. The company had
cancel and descope orders worth over Rs 120bn while Debt/Equity 0.11
FY20 received a part payment (25% of total
its execution was disrupted for ongoing projects as ROE 16%
consideration) of Rs 274.5 mn in FY19 and the
well. Even for the work done, payments were
balance amount of Rs 823.6mn was received FCF (Rs mn) 1,863
withheld leading to significant industry-wide
in FY20.
disruption. Order backlog (Rs mn) 78,489
The company issued and allotted 18mn convertible NJCC invested Rs 1.2bn in NJCC Urban by Revenue growth -11.7%
warrants at Rs 59 per warrant on a preferential basis converting an equivalent amount of debt into
EBITDA growth -17.1%
to the specified promoters. It received 25% of the equity. Together with other repayments, this
led to a decrease in loans outstanding from PAT growth -37.0%
total consideration, while the warrants would be
converted into an equivalent number of equity shares subsidiaries to Rs 3bn as against Rs 5.95bn as
Debt/Equity 0.25
FY21 on payment of the balance amount prior to the expiry of Mar’20.
of 18 months from the date of issue of convertible The company won a significant order worth ROE 5.0%
warrants. over Rs 62bn relating to Jal Jeevan Mission in FCF (Rs mn) 1,396
Uttar Pradesh and hopes to win more such
Borrowings declined from Rs 19.1bn to Rs 17.9bn orders as the opportunity in water is still Order backlog (Rs mn) 379,110
during FY21 for the company. unfolding. Order inflow (Rs mn) 189,430
Investment Analysis
Order backlog of Rs 390bn (4.5x TTM book: bill) is one of the strongest
amongst the peer group
As of Sep’21, NJCC has an order backlog of Rs 390bn (4.5x TTM book: bill), which is
amongst the strongest in its peer group, especially of this size. This is despite the
setback the company faced in 2019 following the cancellation of several orders by
the newly formed Andhra Pradesh government.
Following the cancellation of orders, its order backlog dipped from its then peak of
Rs 411bn in Mar’19 to ~Rs 250bn as of Dec’19. It has, however, grown to the current
high of Rs 390bn since then on the back of a resurgence in order flows from the
buildings & housing and water segments.
At the current level of order backlog, NJCC’s TTM book: bill of 4.5x is at its highest
level ever. Even if we ignore the low base of FY21 revenues, NJCC’s current order
book is 3.23x FY19 reported revenues, which is still amongst the best it has ever had.
Previous such book: bill peaks have been followed by a strong revenue booking as
the orders go into execution mode.
Exhibit 19: Has built up a strong order backlog since FY18 despite the 2019 order
cancellation setback
4,00,000 6
3,50,000
5
3,00,000
4
2,50,000
Rs mn
(x)
2,00,000 3
1,50,000
2
1,00,000
1
50,000
- 0
FY19
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY20
FY21
Buildings Roads
Water Irrigation/Hydro
Orderbook to sales (RHS)
Buildings & Housing (B&H) segment is now more diversified and caters to airport
terminals, metro and several Center/PSU funded projects among others
57% of NJCC’s order backlog is contributed by the B&H segment, which has grown at
a CAGR of 20% over FY13-21 despite the order cancellations faced in 2019. Contrary
to its order backlog composition until FY19, where its B&H segment had majority
orders from state-funded projects, today, over 40% of the B&H order backlog
comprises centre-funded or PSU orders. These orders range across the spectrum of
the infrastructure sector, such as airport terminals, metro projects, hospital
buildings, naval base (Karwar) etc.
Apart from providing necessary diversification to its order backlog, these orders also
insulate NJCC from risks such as the one it witnessed in 2019 upon the change in
Government in Andhra Pradesh. Book: bill for the B&H segment stands at 7.6x on a
TTM basis, and even if we take FY19 revenues as a base (given that it was the peak
revenue for NJCC), the book: bill stands at 3.9x.
Exhibit 20: Buildings & Housing (B&H) has been the key driver of Exhibit 21: Key B&H projects under execution – Top-4 projects
orders for NJCC accounting for 57% of its backlog (RHS) account for ~40% of the total B&H orderbook
250 9.0
8.0 Details of major projects under execution
200 7.0
Value
6.0 Project Name Location
(Rs mn)
150
5.0
4.0 AIIMS 4 locations 37,170
100
3.0 Project Seabird (2 projects)
Karnataka 24,420
50 2.0 (Seabird project Phase 2A Karwar)
1.0
AAI 3 locations 16,930
- -
FY02
FY10
FY17
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY11
FY12
FY13
FY14
FY15
FY16
FY18
FY19
FY20
FY21
MMRDA Mumbai metro Mumbai 8,570
Buildings (Rs bn) TTM Book:Bill (x) (RHS)
Water & Environment (W&E) segment is now spread pan-India with state water
supply projects being the primary driver
20% of NJCC’s order backlog is contributed by its W&E segment at Rs 84.7bn as of
Sep’21 and has grown at a CAGR of 12% over FY13-21 despite the order cancellations
in 2019. A large part of the current order backlog in this segment is driven by state
water supply projects, particularly in UP. With the significant opportunity
forthcoming in the segment under the Jal Jeevan Mission and NJCC’s pan-India
presence, we believe W&E will continue to witness a steady pipeline of
opportunities. As of Sep-21, the book: bill in this segment stood at 3.2x on FY19
revenues.
Exhibit 22: Water & Environment (W&E) is the other key segment Exhibit 23: Key W&E projects under execution – Top-4 projects
contributing to ~20% of the total order book account for the bulk of W&E order book
100 4.5
90 4.0 Details of major projects under execution
80 3.5 Value
70 Project Name Location
3.0 (Rs mn)
60
2.5 State water & Sanitation Mission 10 Districts of
50 82,550
2.0 Govt of UP UP
40
30 1.5 Namami Gange & Rural Water Mirzapur &
10,840
20 1.0 Supply Jhansi
10 0.5
TDWSP - Warangal Warangal 7,210
- -
FY02
FY09
FY16
FY03
FY04
FY05
FY06
FY07
FY08
FY10
FY11
FY12
FY13
FY14
FY15
FY17
FY18
FY19
FY20
FY21
SAUNI Package 6 Phase II L-4 Amreli 6,810

Water (Rs bn) TTM Book:Bill (x) (RHS)
The irrigation segment contributes to just 6% of the overall order backlog now and
has not grown much beyond Andhra Pradesh/Telangana
Only about 6% of NJCC’s order backlog is contributed by the irrigation segment,
which has not grown much in the past few years. Even when compared to FY13
levels, it has grown at a CAGR of just 4% over FY13-21. The bulk of the orders in this
segment are from Telangana and Andhra Pradesh and relate to lift irrigation,
reservoirs and canal work. Book: bill for the segment as of Sep’21 stood at 6.2x on a
TTM basis.
Exhibit 24: Irrigation contributes to ~6% of the total order book Exhibit 25: Key irrigation projects under execution
30 12.0
Details of major projects under execution
25 10.0
20 8.0 Value
Project Name Location
(Rs mn)
15 6.0
Lift Irrigation Project (PRLIS) Telangana 10,080
10 4.0
5 2.0 Formation of Reservoir project –

Telangana 5,920
Baswapur
- -
Modernization of Midpennar Andhra
FY08
FY21
FY02
FY03
FY04
FY05
FY06
FY07
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
4,410
South Canal Package 43 and 44 Pradesh
Irrigation/Hydro (Rs bn) TTM Book:Bill (x) (RHS)
Roads is now a small segment for NJCC as the lack of traditionally large EPC orders
and rising competition has kept it away from aggressive bidding
At just Rs 13.4bn of orders in the roads segment, it contributes only 4% of NJCC’s
order backlog as of Sep’21. Like L&T, it has stayed away from HAM projects in its bid
to remain asset-light and not invest own equity for infrastructure projects. With a
major part of road orders being placed on the HAM model in the last few years, NJCC
has missed out on the segment growth opportunity, though arguably also remained
conservative, given the high competitive intensity. We do not foresee a major
change to the road sector order backlog for the company as the bulk of the future
segment growth will still hinge upon NHAI orders under HAM and NJCC may continue
to refrain from participating in those orders.
Exhibit 26: Roads contributes to ~4% of the total order book Exhibit 27: Key roads projects under execution – Top-5 projects
account for bulk of the roads orderbook
100 Details of major projects under execution

90
80 Value
70 (Rs mn)
60 Nagpur Mumbai express way Maharashtra 28,500
50
40 Jabalpur Flyover Jabalpur City 6,860
30
20 Madurai Ring Road Tamil Nadu 4,400
10
Double Deck Flyover - Chandni
- Maharashtra 3,310
chowk - Chhapra town
FY07
FY16
FY02
FY03
FY04
FY05
FY06
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY17
FY18
FY19
FY20
FY21
White topping of Roads -

Karnataka 2,670
Roads (Rs bn) Bengaluru
Electricals segment, though small, has grown at a 13% CAGR since FY13
5% of NJCC’s order backlog is contributed by the Electricals segment that has grown
at a CAGR of 13% over FY14-21. Orders in the segment comprise mostly those
relating to power distribution companies and/or those under the Saubhagya scheme.
Book: bill for the segment on a TTM basis stood at ~2.9x as of Sep’21.
Exhibit 28: Electrical projects contribute to ~5% of the total order book – Top-3 projects
account for the bulk of the electrical segment order book
Details of major projects under execution
Value
(Rs mn)
PVVNL-Saubhagya-Meerut Uttar Pradesh 4,750
Jharkhand Bijili Vitran Nigam Limited Ranchi Jharkhand 5,380
BESCOM Kengeri Indiranagar Jayanagar Bangalore 6,100

Balance sheet has improved substantially over the past

decade; focus is now on an asset-light business model
A different story over two decades
Along with many other infrastructure companies, NJCC possibly went overboard
during the previous capex cycle venturing out into asset-heavy businesses and
diversifying internationally as well.
This led to substantial investments via equity and loans & advances into its subsidiary
and associate companies during FY04-14. Together with the rising working capital
cycle, this led to a period of rising debt for the company - it hit a peak debt of Rs
24bn in FY14 (Net D/E of 1x).
Since then, the company had a strategic intent to reduce debt by –
1) Focusing on its core competency
• Construction business (EPC and item rate contracts) with asset-light strategy
• Monetizing BOT and real estate assets exposure
• Limited exposure to selective HAM projects in roads
2) Focusing on India
• With the government’s sustained push on infrastructure development and
housing for all in India, NJCC is now focusing solely on bidding for
construction projects in India
• Exited from the Middle East construction business
3) Improving operational efficiency and return metrics
• Continuing efforts in improving operational efficiency and reducing costs
• Focusing on superior management and better control of projects by
strengthening internal MIS and review system
• Sustained efforts on improving EBITDA and net profit margins
• Reduction of debt and interest costs
Exhibit 29: Debt piled up in the last capex cycle as NJCC expanded Exhibit 30: …Since FY14, a concerted effort towards debt reduction
across newer geographies and asset-heavy businesses has been paying off well; sustained high finance cost is a function
of higher bank guarantees now ingrained in the sector
30 4 30 4
4 4
25 25
3 3
20 20
3 3
15 2 15 2
2 2
10 10
1 1
5 5
1 1
- - - -
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY14
FY19
FY22E
FY23E
FY24E
FY15
FY16
FY17
FY18
FY20
FY21
Net debt (Rs bn) Interest cost net off other income (Rs bn) (RHS) Net debt (Rs bn) Interest cost net off other income (Rs bn) (RHS)
Exhibit 31: NWC cycle now improving (except for temporary COVID-19 related
disruptions) after the deterioration post FY08
15,000 250
200
10,000
150
5,000 100
50
0 0
-50
-5,000
-100
-10,000 -150
Change in NWC (Rs mn) OCF (Rs mn) Working Capital Days (RHS)
Exhibit 32: Working capital and investments & loans to Exhibit 33: Cash flow improved post FY14 through asset sales,
subsidiaries between FY08-14 used up significant cash return of loans from subsidiaries and a reduction in NWC
10,000 10,000
5,000 5,000
0 0
Rs mn
Rs mn
-5,000 -5,000
-10,000 -10,000
-15,000 -15,000
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
Capex Loans & Advances to subs Capex Loans & Advances to subs
Subsidiary investments Cash used in core NWC Subsidiary investments Cash used in core NWC
Interest and dividends paid Interest and dividends paid
Exhibit 34: Between FY08-14, equity and debt issuance were the Exhibit 35: Post FY14, funding has been led by operating cash flow
key sources of funding improvement leading to debt reduction
15,000 25,000
20,000
10,000
15,000
Rs mn
5,000
Rs mn
10,000
0 5,000
0
-5,000
-5,000
Proceeds from share issue
Proceeds from share issue
Proceeds from borrowings Proceeds from borrowings
Other income Other income
Operating CF (before NWC changes) post tax Operating CF (before NWC changes) post tax
Monetization of investments and loans/advances to

subsidiaries largely done; remaining investments still almost
30% of market cap
As of Sep’21, NJCC has over Rs 15bn (over 30% of its market cap) locked into
investments and loans/advances mostly into its subsidiaries.
Over the past decade, it has reduced its investments as well as recovered
loans/advances partially, while also writing off some loss-making investments. While
we do not foresee any major incremental investment into these subsidiaries, the
recovery of the balance amount will lead to an upside to the current valuation as it
accounts for almost 30% of the current market cap.
1) NCC Infra is an infrastructure development company that undertakes
infrastructure projects through government concessions. It has three road
projects in its portfolio currently and is awaiting pending claims from NHAI (and
other clients). The management is confident of recovering the amount and does
not foresee any write-off.
2) NCC Urban is a full-fledged real-estate development entity with operations
spanning residential, commercial, SEZ, townships etc. It has ongoing projects in
Bengaluru, Hyderabad, Kochi, Chennai and Ranchi. It has also acquired land
around Goa, Gurgaon, Kakinada, Lucknow, Raipur and Vizag for its future
projects.
3) NCC Infra Mauritius is largely dependent on receivables fructifying from NCC
Urban, Dubai, which in turn is developing NCC Harmony, a mixed-use real estate
development consisting of 2 towers of 32 floors each. The project was launched
in 2010 and is currently under construction. The receivables may be realized only
upon completion of this project, which may take a while.
4) NCC Vizag Urban Infra had signed a JV with the Andhra Pradesh state
government in 2007 for joint development of a land parcel spread over 97.3
acres in Madhurawada of Vizag, now one of the proposed executive capitals of
the state. However, the state government cancelled the JV in 2013 and NCC filed
a case in the High court. As per media reports, the land is valued at over Rs 10bn
and NCC has now offered to convert this land to freehold to withdraw the case
filed in HC. Monetization of the land bank can begin only after the approval. The
management expects to monetize net Rs 4bn from this JV.
In our SoTP though, we only capture Rs 6.4bn (Rs 10.5/share) out of the total
investments on a conservative basis.
Exhibit 36: Investments and loans/advances to subsidiaries account for over 30% of the market cap
Investments and loans to subsidiaries as of Mar-21 Loans/ Total Net assets of sub
NJCC stake Investments
(Rs mn) Advances investments as of Mar-21
NCC Urban Infra 80% 2,400 1,495 3,895 3,207
NCC Infra Holdings 62.84% 3,885 3,885 3,883
NCC Infra Mauritius 100% 1,759 452 2,211 545
NCC Vizag Urban Infra 95% 500 1,109 1,609 267
NCC Intl, Oman 100% 1,149 1,149 783
Total 9,693 3,056 12,748 8,685
Investment property – Land & Building 2,465 - 2,465
Grand Total 12,158 3,056 15,213

Revenue growth should follow the strong order book built over the past few years
NJCC’s order backlog has grown at a CAGR of 21% over FY17-21 despite order
cancellations in the interim and the pandemic impact. During the same time,
however, its revenues have lagged, declining by 8% partly due to pandemic-related
slowdown and execution-related challenges after order cancellations and change in
the Andhra Pradesh government.
However, with a strong order backlog built up again with TTM book: bill exceeding
4.5x, we believe NJCC is well-placed for a strong execution revival over FY21-24E. We
estimate the company to deliver a revenue CAGR of 17.4% over FY21-24E, translating
into a similar EBITDA CAGR over the same period.
While we factor in the commodity price impact in FY22, we believe margins should
normalize over a period as the company will be able to pass on the cost hike in line
with its peers.
Exhibit 37: Revenue growth should ultimately follow its order Exhibit 38: …Despite commodity impact, EBITDA growth should be
backlog growth over FY22-25E healthy on account of strong revenue growth
140 0.8 16 14
120 0.6 14 12
100 12
10
0.4
10
80 8
0.2 8
60 6
6
0
40 4
4
20 -0.2 2
2
0 -0.4 0 0
FY12
FY14
FY13
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22E
FY23E
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22E
FY23E
Revenue (Rs bn) Revenue Growth (%) (RHS) EBITDA (Rs bn) EBITDA % (RHS)
We estimate strong OCF/FCF generation on higher conversion from EBITDA

compared to the past…
NJCC has had negligible OCF/FCF (net of interest expenses) for over a decade owing
to the worsening working capital cycle and high finance cost. However, with its focus
on execution and collections, an improvement in its NWC and a reduction in finance
cost (through debt reduction) has led to a strong revival in FY20 and FY21, where it
generated Rs 5.33bn of OCF (net of finance cost), which translates into ~30%
OCF/EBITDA. While this is significantly lower than the average OCF/EBITDA levels of
80%+ by KNR and PNC, it is still a welcome change.
Even if NJCC reverts to its average NWC level of 145 days (maintained over FY15-19)
by FY24E, this should translate into strong OCF/FCF generation. We estimate an
average 55%+ OCF/EBITDA over FY22-24E for NJCC.
…and together with subsidiary monetization, this should lead to an almost debt-
free status by FY24
On our estimates, NJCC is likely to turn almost debt-free at the standalone level by
FY24 (0.05x Net D/E) compared to its FY21 Net D/E of 0.25x. This will be driven by
strong OCF/FCF generation in the core EPC business and partially by the
monetization of subsidiary investments. Given the company’s strong execution
capability across segments pan-India, a debt-free balance sheet will allow a strong
re-rating of the stock.
Exhibit 39: We estimate negligible levels of net debt for NJCC by FY24E
30,000 1.2
25,000 1.0
20,000 0.8
15,000 0.6
10,000 0.4
5,000 0.2
- 0.0
FY13 FY15 FY17 FY19 FY21 FY23E
Net debt (Rs bn) Net D/E (x) RHS
10-13%+ RoE/RoCE with positive OCF/FCF has scope for improvement

For EPC players, looking at RoE/RoCE makes sense only if they are generating positive
FCF. With NJCC now returning to a positive OCF/FCF level, its RoE/RoCE levels should
gradually improve. High working capital, investments in non-profitable subsidiaries
and slow execution have impacted its return ratios. By FY24E, we expect its RoCE to
improve to 13% in-line with core RoE (net off impact from subsidiaries).
One of the key drivers of NJCC’s RoE/RoCE improvement and positive OCF/FCF
generation is likely to be control over its working capital cycle, which will pave the
way for a sustained reduction in debt levels.
Exhibit 40: Improvement in execution, subsidiary investment Exhibit 41: WC cycle now under control except for the flare-up
monetization and NWC reduction likely led to better RoCE due to COVID-19
16 250
14
12 200
10
150
8
6 100
4
50
2
0 0
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22E FY23E FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22E FY23E
RoE (%) RoCE (%) Working Cap (Days)
Exhibit 42: OCF and FCF generation to get a boost (Rs bn) Exhibit 43: …driven by higher conversion from EBITDA/PAT
10 150%
8 100%
6 50%
4 0%
2 -50%
- -100%
(2) -150%
(4) -200%
(6) -250%
FY15
FY20
FY22E
FY23E
FY13
FY14
FY16
FY17
FY18
FY19
FY21
FY19
FY13
FY14
FY15
FY16
FY17
FY18
FY20
FY21
FY22E
FY23E
OCF - Net Interest Expense (Rs bn) FCF - Net Interest Expense (Rs bn) OCF/EBITDA FCF/PAT

Rs mn FY19 FY20 FY21 FY22E FY23E
Order inflow 223,770 71,720 189,430 148,500 155,925
Revenue 120,798 82,188 72,557 92,545 105,817
EBITDA margin 11.8% 12.5% 11.8% 11.1% 11.5%
Order book 411,970 265,720 379,110 434,576 484,159
OB to sales (x) 3.4 3.2 5.2 4.7 4.6
Valuation & view

With sustainable growth pegged at 9% and an estimated core RoE of 14%, we value
NJCC’s core EPC business at 12x FY24E P/E to arrive at Rs 132/share fair value
NJCC has delivered a PAT CAGR of ~13% over FY08-19 (peak to peak). While it is well-
placed for 33%+ CAGR over FY21-24E given its strong order backlog, order inflows in
the past have tended to be lumpy. Hence, another cycle of lower order inflows in
subsequent years may pull down growth and return ratios.
EPC players trade at a wide valuation range over the cycle due to their volatile order
backlog growth and margin/OCF generation. The valuation range can be as wide as 5-
20x depending on the company profile based on these parameters. Given its patchy
track record on execution and working capital, leading to lower OCF/FCF, NJCC
trades at the lower end of that valuation range despite its stronger book: bill
numbers compared to KNR/PNC.
However, with the substantial improvement in its balance sheet and a further
improvement likely by FY24E, we value NJCC at 12x FY24E P/E given that its long-
term growth may settle around 9% with core RoE of 14% levels. It should be able to
improve its OCF/FCF conversion like it has done since FY20. We value the
investments and loans/advances to subsidiaries at 0.5x BV to arrive at a SoTP-based
fair value of Rs 132/share.
Exhibit 45: SoTP valuation yields a Rs 132 fair value
Particulars Segment Driver Multiple Value (Rs mn) Value per share (Rs) Basis
EPC Business Construction 6,161 12x 73,993 121 12x FY24E P/E
Concessions and
Subsidiaries 12,748 0.5x 6,374 10 0.5x P/BV
real-estate
Total 80,308 132
Exhibit 46: NJCC trading at a significant discount to long-term mean P/E
50
45
40
35
30
25
20
15
10
5
0
Jul-14
Apr-06
Mar-07
Jun-15
Nov-10
May-16
Apr-17
Nov-21
Feb-08
Jan-09
Dec-09
Sep-12
Mar-18
Aug-13
Feb-19
Jan-20
Dec-20
Oct-11
1year forward P/E (x) Average PE
Source: Company, Systematix Institutional Research, Bloomberg
Key risks & risk mitigating measures

Rising competition in the EPC space
Over the years, the road EPC business has been highly competitive with several
regional players vying for orders. However, NJCC has tuned selective in its bid
strategy after bitter experience from excesses of the previous cycle. It has now opted
to stay focused in its focus areas of B&H and W&E segments unless any large order
comes up in the road/irrigation space where it has an opportunity to make a better
margin.
Concentration risk in Andhra Pradesh/Telangana is no longer a concern
NJCC’s order backlog is now diversified compared to earlier times. Uttar Pradesh
accounts for ~25% of the backlog after the recent spate of order wins, while AP
stands at 11%. The company also has an almost equal split of centre and state-
funded projects at 47:53.
Balance sheet exposure could rise if it starts taking up HAM road projects
The company made concerted efforts to repair its balance sheet post FY14 by
divesting non-core assets, containing further worsening of NWC and not participating
in HAM road tenders as it involved equity exposure. With its net D/E falling to 0.25x
in FY21 and further reducing to 0.1x by FY23E, we believe it may rethink its strategy
of not bidding for HAM road projects. Even though this may entail equity exposure,
we believe the company’s balance sheet allows for leverage if it adds to the growth
profile profitably.
Steel and cement prices have run up sharply over the past year, exposing all EPC
players to cost escalation. However, government EPC contracts generally tend to
have a price variation clause that would cover most such cost increases. This may
pose a margin risk for NJCC and other road EPC players in the near term. However, in
the longer term, new bids would ideally bake in such cost escalations, nullifying the
higher cost.
FINANCIALS (STANDALONE)
Net sales 82,188 72,557 92,545 1,05,817 1,17,347 Cash & bank balance 3,169 4,385 6,093 5,473 5,169
RM expenses -64,949 -58,725 -75,886 -86,241 -95,638 Debtors 26,180 26,602 30,426 34,789 36,972
Gross Profit 17,239 13,832 16,658 19,576 21,709 Inventory 5,148 5,268 6,764 7,694 8,538
Employee expenses -4,352 -3,494 -4,018 -4,620 -5,082 Loans & advances 8,331 6,144 6,397 5,932 6,009
Other expenses -2,586 -1,794 -2,386 -2,744 -3,155 Other current assets 61,190 61,084 66,311 70,480 77,694
EBITDA 10,302 8,545 10,255 12,212 13,472 Total current assets 1,04,018 1,03,483 1,15,989 1,24,367 1,34,382
Margin % 12.5% 11.8% 11.1% 11.5% 11.5% Investments 11,000 12,522 12,281 12,281 12,281
Depreciation -1,775 -1,741 -1,878 -2,030 -2,204 Net fixed assets 10,631 10,608 10,430 10,401 10,447
EBIT 8,526 6,804 8,377 10,183 11,268 Total assets 1,25,649 1,26,614 1,38,700 1,47,048 1,57,109
Interest expenses -5,179 -4,578 -4,406 -4,388 -4,278 Current liabilities 56,067 54,459 63,439 74,012 82,077
Other Income 1,513 1,156 1,233 1,270 1,243 Provisions 1,479 1,021 1,013 1,130 1,198
Pre-tax profit 4,860 3,382 5,204 7,064 8,233 Total current liabilities 57,547 55,480 64,452 75,142 83,274
Taxes -713 -771 -1,310 -1,778 -2,072 Borrowings 19,101 17,851 17,851 11,279 8,279
Recurring PAT 4,147 2,611 3,894 5,286 6,161 Net Deferred Tax liability (2,055) (411) (411) (411) (411)
Margin % 5.0% 3.6% 4.2% 5.0% 5.3% Total liabilities 74,593 72,920 81,891 86,010 91,142
Non-recurring Items -327 0 0 0 0 Paid-up capital 1,220 1,220 1,220 1,220 1,220
Reported PAT 3,820 2,611 3,894 5,286 6,161 Reserves & surplus 49,837 52,475 55,590 59,819 64,748
Recurring EPS (Rs) 6.8 4.3 6.4 8.7 10.1 Net Worth 51,056 53,694 56,809 61,039 65,967
Cash EPS (Rs) 9.7 7.1 9.5 12.0 13.7 Total equity & liabilities 1,25,649 1,26,614 1,38,700 1,47,048 1,57,109
DPS (Rs) 1.5 0.8 1.3 1.7 2.0 Book Value/share (Rs) 83.7 88.0 93.2 100.1 108.2
Cash Flow Ratios

Pre-tax profit 4,860 3,382 5,204 7,064 8,233 P/E (x) 11.0 17.5 11.7 8.7 7.4
Depreciation 1,775 1,741 1,878 2,030 2,204 P/BV (x) 0.9 0.9 0.8 0.7 0.7
Chg in working capital -3,471 -1,934 -1,827 1,693 -2,187 EV/EBITDA (x) 4.4 5.4 4.5 3.7 3.4
Other non-cash items 4,566 3,892 3,173 3,118 3,034 EV/Sales (x) 0.6 0.6 0.5 0.4 0.4
Total tax paid -1,366 -188 -1,310 -1,778 -2,072 Dividend Yield (%) 2.0% 1.1% 1.7% 2.3% 2.7%
Operating Cash Flow 6,364 6,893 7,118 12,127 9,213 RoE (%) 8.3% 5.0% 7.0% 8.9% 9.6%
Capital expenditure -1,441 -1,915 -1,700 -2,000 -2,250 RoCE (%) 12.6% 8.8% 9.8% 11.6% 12.7%
Free Cash Flow 4,924 4,978 5,418 10,127 6,963
Investments -2,082 623 242 0 0 Fixed Asset turnover (x) 7.7 6.8 8.9 10.2 11.2
Other investing Cash flow 1,874 928 1,233 1,270 1,243 Receivable days 116 134 120 120 115
Investing Cash Flow -1,649 -364 -226 -730 -1,007 Inventory days 29 33 33 33 33
Debt raised/(repaid) -832 -1,212 0 -6,572 -3,000 Working Capital Cycle (days) 192 219 179 151 143
Dividend (incl. tax) -1,086 -122 -779 -1,057 -1,232
Other Financing Cash Flow -4,728 -4,619 -4,406 -4,388 -4,278 Revenue Growth (%) -32% -12% 28% 14% 11%
Financing Cash Flow -5,823 -5,688 -5,185 -12,017 -8,510 EBITDA Growth (%) -28% -17% 20% 19% 10%
Net chg in cash -1,107 842 1,708 -620 -304 EPS Growth % -34% -37% 49% 36% 17%
Opening cash balance 2,990 3,169 4,385 6,093 5,473
Closing cash balance 3,169 4,385 6,093 5,473 5,169 Net Debt/Equity (x) 0.3 0.3 0.2 0.1 0.0
Net Debt/EBITDA (x) 1.5 1.6 1.1 0.5 0.2
Mkt Cap 45,739 45,739 45,739 45,739 45,739 Source: Company, Systematix Institutional Research
Net Debt 15,932 13,466 11,758 5,806 3,111
EV 61,671 59,204 57,497 51,545 48,849
Systematix
KNR Constructions 20 December 2021
Slow and steady wins the race

INITIATING COVERAGE KNR Constructions (KNRC) is amongst the few construction companies to choose a
Sector: Infrastructure Rating: BUY careful order accretion strategy, resulting in a relatively slow but steady
revenue/EBITDA growth. It is perhaps the only listed company to generate
CMP: Rs 295 Target Price: Rs 356
consistent OCF/FCF over the past 10 years, with a cumulative OCF (ex-interest
Stock Info expenses) of ~Rs 18bn and revenues increasing by over 3.5x from Rs 7bn to Rs 27bn
Sensex/Nifty 58,117/ 17,325 over FY12-21. It had a strong order book (and L1 position) of Rs 116bn as of Sep-21
Bloomberg KNRC IN (3.7x TTM book: bill), providing strong revenue growth visibility and allowing the
Equity shares (mn) 281 company to remain conservative in a slowing ordering environment. We estimate
52-wk High/Low Rs 344/ Rs 148 KNRC to deliver a PAT CAGR of ~27% over FY20-23E. The stock trades at 17.9x
Face value Rs 2 FY23E. We initiate coverage on KNRC with a BUY rating and a target price of Rs 356
M-Cap Rs 83bn/ USD 1.1bn (upside of 21%).
3-m Avg traded value USD 1.6mn
Primed for sustainable growth
Financial Snapshot (Rs bn)
KNRC is relatively better placed than its peers to benefit from the infrastructure
Revenue 32.5 40.9 46.3
capex in Southern India. While we are concerned about the slowdown in
EBITDA 6.5 8.1 9.5 infrastructure ordering at a macro level, the company is a growth outlier with a
PAT 3.8 4.7 5.6 strong order book and L1 position of Rs 116bn (3.7x TTM book: bill) that provides
EPS (Rs) 13.6 16.7 19.7 revenue visibility. It also has a track record of being conservative in order booking – it
RoE % 18.7% 19.1% 18.9% has a mix of NHAI, state government and municipal projects. Out of its current
RoCE % 28.3% 28.2% 28.2% confirmed order book of ~Rs 65bn, eight projects make up over 80% of the total
P/E (x) 21.6 17.6 14.9 value, suggesting that it does not need to depend on aggressive bids to sustain
P/BV (x) 3.7 3.1 2.6 growth.
Shareholding pattern (%) Strong earnings growth potential
We are building in a PAT CAGR of ~27% over FY20-23E. KNRC has invested
Promoter 51.5 53.3 55.0
significantly in capex and workforce over the past 3-4 years, anticipating this growth.
–Pledged - - -
FII 4.3 2.3 2.1 With a stable working capital cycle, its OCF/FCF growth should also sustain at similar
DII 33.9 34.4 32.4 levels. The cash generated from the sale of assets from its HAM (hybrid annuity
Others 10.4 10.1 10.6 model)/BOT (build-operate-transfer) portfolio and its strong OCF/FCF should be
more than sufficient for investing in the next set of HAM projects and maintaining its
Stock Performance (1-year) growth trajectory.
250 Outlook and valuations
200
We value the stock at 18x FY23E EPS and add 1x BV for the company’s investment in
150 the BOT/HAM road projects. While we prefer a valuation range of 12-18x P/E for the
sector, KNRC scores better than its peers on sustainability, cash generation and
100
leverage and hence, deserves the higher end of the valuation range.
50
Key risks
-
Dec-20
Jan-21
Sep-21
Dec-21
Feb-21
Mar-21
Apr-21
Jul-21
Nov-21
Aug-21
May-21
Jun-21
Oct-21
1) Margin dilution due to rising competition in roads EPC (engineering-procurement-

construction)/HAM contracts; 2) Higher concentration in Southern India; 3) Potential
KNRC SENSEX
impact on margins due to the sharp increase in commodity prices recently.
Amar Kedia
+91 22 6619 8084
20 December 2021 KNR Constructions
Story in charts
Exhibit 1: Strong track record of early completion of projects has supported industry-leading margins
1,600 -40%
1,400 -35%
1,200 -30%
-25%
1,000
-20%
Days
800
%
-15%
600
-10%
400 -5%
200 0%
- 5%
Hyderabad - Chanda
Siricilla - Siddipet
Narsapur - Aswaraopet
Karimnagar - Kamareddy
Bijapu - Hungund
Walayar - Vadakkancherry
Hyderabad - Ramagundam
Penchalakona - Yerpedu
Chittor - Mallavaram
Scheduled completion Actual completion % Early completion (RHS)
Source: Company data, Systematix Institutional Research
Exhibit 2: Andhra Pradesh holds a high share of road projects planned under the
National Infrastructure Pipeline, benefiting players like KNRC the most (Rs bn)
(Rs bn)
2,500
2,000
KNRC to benefit as most DPR
(detailed project report)-ready 1,500
road projects are in its core
1,000
focus geographies.
500
0
Karnataka
Kerala
Pradesh
Pradesh
Tamil Nadu
West Bengal
Telangana
Gujarat
Assam
Others
Maharashtra
Madhya
Jammu &
Pradesh
Andhra
Kashmir
Uttar
Exhibit 3: Telangana, AP, Karnataka and MP hold most of the upcoming irrigation
projects, further benefitting players like KNRC (Rs bn)
(Rs bn)
2,500
2,000
KNRC, NCC, Megha and Dilip 1,500
Buildcon to benefit as most of 1,000
the large irrigation projects are 500
in their core focus geographies.
0
Karnataka
Odisha
West Bengal
Pan India
Jharkhand
Gujarat
Pradesh
Maharashtra
Uttar Pradesh
Telangana
Madhya
Tamil Nadu
Madhya Pradesh I
Pradesh
Andhra
Uttar Pradesh
Andhra Pradesh I
Exhibit 4: Lumpy order wins since FY12… Exhibit 5: …yet steady and secure revenue growth
100 4.5 45 80%
90 4 70%
40
80 3.5 60%
35
70 3 50%
30
60 40%
2.5 25
50 30%
2 20
40 20%
30 1.5 15 10%
20 1 10 0%
10 0.5 5 -10%
0 0 0 -20%
FY18
FY12
FY13
FY14
FY15
FY16
FY17
FY19
FY20
FY21E
FY22E
FY23E
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
Order Book (Rs bn) Book:Bill (x) (RHS) Revenue (Rs bn) Revenue Growth (%) (RHS)
Exhibit 6: Revenue growth led to EBITDA improvement Exhibit 7: EBITDA CAGR has been lumpy
9 25 50% 47.1%
8 45%
7 20
40%
6
15 35%
5
30%
4
10 25%
3 19.9%
20%
2 5
15%
1
0 0 10%
3.4%
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
5%
0%
EBITDA (Rs bn) EBITDA % (RHS) % CAGR over FY12-16 % CAGR over FY16-20 % CAGR over FY20-23
Exhibit 8: Consistent OCF and FCF generation (Rs bn)… Exhibit 9: …driven by high conversion ratio from EBITDA/PAT
6 200%
5 150%
4
100%
3
50%
Rs bn
2
0%
1
0 -50%
-1 -100%
-2 -150%
FY13
FY12
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
FY21E
FY13
FY17
FY22E
FY23E
FY12
FY14
FY15
FY16
FY18
FY19
FY20
OCF - Net Interest expense FCF - Net Interest expense OCF/EBITDA FCF/PAT
Exhibit 10: Improvement in margins has led to better RoCE Exhibit 11: WC cycle and D/E under control and amongst the best
150 0.3
35.0
30.0 0.3
120
25.0 0.2
90
20.0 0.2
15.0 60
0.1
10.0
30
0.1
5.0
0 0.0
0.0
FY12
FY17
FY13
FY14
FY15
FY16
FY18
FY19
FY20
FY21E
FY22E
FY23E
FY12
FY17
FY13
FY14
FY15
FY16
FY18
FY19
FY20
FY21E
FY22E
FY23E
RoE (%) RoCE (%) Working Cap (Days) Total D/E (x) (RHS)
Company background
KNRC Constructions (KNRC) is a leading construction company with a strong focus on
the southern states of India and a track record of early execution, focus on cash
flows and a conservative but prudent bidding strategy.
The company was incorporated in 1995 by professionals experienced in
infrastructure development - the promoter, Mr. K Narasimha Reddy had founded the
business much earlier to carry out activities as a sub-contractor. It was listed in FY08
and has maintained a prudent and disciplined bidding strategy in an era
characterised by aggressive bidding and over-leveraging by peers.
KNRC has a strong presence in machinery and manpower in the southern states of
Karnataka, Andhra Pradesh and Telangana.
Exhibit 12: Transformation over the past 25 years
Exhibit 13: 75-80% of KNRC’s execution in the past has been in Southern India
State No. of Projects Project Value (Rs mn)
Tamil Nadu 12 36,530
Karnataka 13 17,149
Kerala 2 17,068
AP & Telangana 27 13,099
Madhya Pradesh 5 5,189
Uttar Pradesh 10 4,549
Assam 2 4,038
Gujarat 1 2,550
Arunachal Pradesh 1 2,358
Odisha 1 1,866
Haryana 1 118
Total 75 104,514
Key management team

KNRC’s top management is actively involved in site activities to settle local issues and
matters concerning land availability. While land availability is NHAI’s responsibility,
the company has empowered its site management at various projects to get involved
in the process. The management liaises with project authorities and local state
officials to accelerate the acquisition process and ensure timely disbursement of
compensation to those affected by the project. Consequently, KNRC has obtained
physical possession of ‘encumbrance-free’ stretches, while its larger peers lag on this
parameter.
The company has shifted its focus on central and state government orders after
facing challenges in collecting payments from the private sector.
The management follows a rigorous project selection practice that covers aspects
like the geographic location, the degree of difficulty in executing the project in a
particular area, current and projected workload, the likelihood of additional work
and the project’s cost and profitability estimates. Projects are evaluated through site
visits that help assess the economic availability of key construction material,
manpower availability and potential sites for quarries for aggregates. The
management prefers projects involving high engineering skills, implying less
competition and better margins.
Exhibit 14: Board of Directors
Name Designation Profile
Joined the Indian Administrative Service in 1973 and has over 34 years of experience in
development, administration and industrial management. During his stint with the Indian
Administrative Service, he held positions including Chief Secretary to the Andhra Pradesh
Non-Executive &
Mr. B. V. Rama Rao government and Chairman and Managing Director, Nizam Sugars Limited until his retirement in
Independent Chairman
1997. He holds a Master's Degree in Economics from Osmania University and MA in Public
Administration from Kennedy School of Government Harvard-USA. He was also conferred the
title of Overseas Fellow Member of the Economic Development Institute by the World Bank.
Has over 50 years of experience in the highways sector. He started as a sub-contractor in 1968
Founder & Managing before engaging in a partnership to undertake civil and mechanical contracts in 1979. He has
Mr. K. Narasimha Reddy
Director extensive knowledge and experience in multi projects planning, scheduling, cost control and is
the driving force behind KNRC.
Has over 25 years of experience in the highways and infrastructure sector. He started as a
Executive Director/
Mr. K. Jalandhar Reddy Project manager and was elevated to the Executive Director of KNRC in 1997. He heads the
CFO
tendering and bidding activities and is also in-charge of project execution.
Smt. K. Yashoda Non-Executive Director Wife of the company's founder promoter Mr. Narasimha Reddy.
A Fellow Member of The Institute of Chartered Accountants of India and a senior partner in M/s.
L. B. Reddy & Co., a Chartered Accountants firm. He started his career with Syndicate Bank and
Mr. L. B. Reddy Independent Director has worked in various capacities before retiring as General Manager. He has over 30 years of
experience in planning, audit, monitoring accounting systems, and development. He was also on
deputation from Syndicate Bank with Rayalaseema Grameena Bank as Chairman for six years.
A graduate in commerce from Nagarjuna University and Medical terminology, Hospital Billing
Independent & Non- and Coding from Greenville Technical College, USA. She is a medical office professional with over
Smt G Chandra Rekha
Executive Director seven years of experience in a variety of administrative and clinical positions. She has worked as
a billing and coding specialist and medical administrator in North Hills.
Annual report analysis

Exhibit 15: Annual Report Analysis
Year Demand scenario & outlook Key events Key performance indicators
Revenue growth 71%
KNRC along with Patel Engineering EBITDA growth 50%

KNRC has infused Rs 2.6bn into Walayar -
signed a share purchase PAT growth 4%
Vadakkancherry project in Kerala which has been used
agreement to sell entire equity
by the Project Company to pay-off debt - thereby
stake in two road BOT (annuity) Debt/Equity 0.12
FY17 reducing the interest burden on the project; total toll
assets. Both are operational
collection will take care of principal, interest and O&M ROE 21%
annuity-based BOT assets awarded
payments.
by NHAI. FCF (Rs mn) 1,700
The road ministry has recorded Revenue growth 25%

KNRC bagged five HAM projects with a bid project cost highest-ever awarding of
of Rs 56bn in FY18. 17,055km in FY18, up by 7% over EBITDA growth 67%
FY17.
PAT growth 62%
For the two BOT (annuity) assets where KNRC holds 40%
stake, monetization is deferred till the arbitration Debt/Equity 0.15
FY18
proceedings on claims reach a logical end.
ROE 27%
KNRC won a large irrigation order for Kaleshwaram FCF (Rs mn) (680)
Project (formation of Konda Pochamma Sagar for a
capacity of 15.00 TMC near Pamulaparthi, Siddipet
District) worth Rs 5.6bn. Order inflow (Rs mn) 4,853
By 2023-24, NHAI is expected to award 32,300 km, out Revenue growth 11%
of which, 60% of the order book is expected to be EPC The notable feature of the KNRC
and remaining 40% to be HAM. HAM projects is the agreed EBITDA growth 11%
participation to the extent of 49%
PAT growth -2%
The company is now focusing on foraying into other by Cube Highways, which is
areas such as water management through irrigation investing for the first time in Debt/Equity 0.16
FY19 canals, reservoirs, dams, pipelines, building, flyovers, under-construction projects and
metro-rails and railways to diversify the order book and looking to buy back all 4 HAM ROE 21%
widen opportunities. projects in a phased manner i.e on
FCF (Rs mn) 330
COD. This will facilitate KNRC’s exit
with an expected return of more Order backlog (Rs mn) 65,000
than 1.50x on investment.
Year Demand scenario & outlook Key events Key performance indicators
Revenue growth 5%
The COVID-19 pandemic and subsequent nationwide
KNRC continued to enjoy strong EBITDA growth 14%
lockdown disrupted the growth of infrastructure
credit rating of AA- on account of
companies in FY20. Though NHAI was expected to step PAT growth -11%
lower dependence on external
up ordering in 4Q, the momentum waned in March-20,
borrowing, adequate working Debt/Equity 0.11
partially because of the pandemic. Ordering activity is
capital cycle and financial risk
likely to remain muted at least in 1HFY21 – expect some
management. ROE 16%
pick up from 2QFY21, if not later.
FCF (Rs mn) 1,863
To address the pandemic, the government has rolled Order backlog (Rs mn) 78,489
out a stimulus package under the ‘Atmanirbhar Bharat
FY20 Abhiyan’. For roads & highways companies, an The construction work is Order inflow (Rs mn) 34,583
extension of up to 6 months (without contractor costs) progressing as per schedule in all
will be provided by all central agencies. It will cover four HAM projects; the appointed
obligations like completion of work, intermediate day is awaited for one NHAI HAM
milestones and extension of concession period in PPP project. KNRC completed two BOT
contracts. It will also classify the lockdown event as a Toll (NHAI) projects and two
Force Majeure for the projects impacted due to annuity (NHAI) projects. The foray
lockdowns. Besides, the government agencies were also into irrigation paid rich dividends
asked to release partial bank guarantees, to the extent as the company bagged two more
of project completion, to ease cash flow problems. projects in JV to the tune of Rs
MoRTH has also decided to release Rs 75-8bn of 23.3bn.
retention money to provide liquidity support to the EPC
contractors.
The government has laid a roadmap to complete a total During the year, KNRC sold 100% Revenue growth 20%
of 200,000 km of national highways by 2022. In the next of its stake in KNR Walayar EBITDA growth 10%
five years, NHAI can generate USD 14.3bn p.a. from toll Tollways at close to book value
and other sources. In the Union Budget 2021, the and received the entire PAT growth 8%
government has given a massive push to the consideration, thereby repaying
infrastructure sector by allocating USD 32.02bn to promoters’ entire un-secured loan Debt/Equity Nil
FY21
enhance the transport infrastructure. and making KNRC debt-free. ROE 16%
KNRC is executing five HAM projects. Out of these, three FCF (Rs mn) 2,001
Three HAM projects are set to be
HAM projects are expected to achieve COD/PCOD
monetized before the end of FY22. Order backlog (Rs mn) 71,179
during June to September 2021.
Investment Analysis
Strong track record of timely/early project completion has aided
bonus/timely payments
KNRC has a strong track record of early project completion. It has completed some of
its projects one year ahead of schedule. Early completions add to its asset turnover
and result in earnings upsides (early-completion bonus). This is reflected in its
sustained industry-leading EBITDA margin of 17-20% vs. peer average of 12-15%.
Exhibit 16: Strong track record of early completion of projects has aided industry-leading margins
1,600 -40%
1,400 -35%
1,200 -30%
1,000 -25%
-20%
Days
800
%
-15%
600 -10%
400 -5%
200 0%
- 5%
Siricilla - Siddipet
Narsapur - Aswaraopet
Karimnagar - Kamareddy
Bijapu - Hungund
Walayar - Vadakkancherry
Hyderabad - Ramagundam
Hyderabad - Chanda
Penchalakona - Yerpedu
Chittor - Mallavaram
Scheduled completion Actual completion % Early completion (RHS)
Source: Company data, Systematix Institutional Research
Maintains a strong in-house repository of construction equipment

Equipment ownership assumes significance in EPC contracts due to 1) increased
control over execution, 2) equipment leasing being costly and unreliable and 3) the
lead time for concrete pavers to arrive at the site – imports into India from the time
of placing orders take over six months, which can lead to delayed mobilization.
Exhibit 17: Investment in equipment driving revenue growth
20 3.00
18
16 2.50
14 2.00
12
10 1.50
8
6 1.00
4 0.50
2
0 -
FY15
FY19
FY12
FY13
FY14
FY16
FY17
FY18
FY20
FY21E
FY22E
FY23E
Gross block (Rs bn) Revenue/Gross block (x) (RHS)

Exhibit 18: Bank of in-house equipment
Exhibit 19: Strong in-house execution team
KNRC prefers complete in-house execution and does not contract-out large projects
(> Rs 2.5bn value) to any party. This helps it maintain firm control over project
outcomes and ensures a superior margin/WC cycle.
However, according to the management, for orders below Rs 2.5bn, at times, it does
not make much economic sense to deploy machinery and additional manpower
when they can be gainfully used elsewhere. KNRC may choose to sub-contract such
projects if a third-party contractor is already mobilized in the region, with its
manpower and equipment. This leads to capex savings and eliminates additional
headcount requirements. The management believes that maintaining an appropriate
outsourcing and in-house execution balance is one of the key reasons for its strong
cash flows.
It also has a network of quarries across the southern states, where it can carry out
stone crushing, thus enabling a secure supply of aggregates. It also has several sand
mining approvals, enabling it to burrow sand for projects. With quarries and sand
mining approvals in place, KNRC can claim raw materials security, thus reducing lead
time to execution.
Capability to mobilize quickly in the southern region

The company is extensively deployed in the southern states and has a large cluster of
projects in the region. This helps redeploy manpower and machinery from one
project to another within the southern cluster. The ability to mobilize rapidly is
critical as it saves mobilization costs and leads to rapid execution progress, which
gets reflected in revenue growth and early completion of its projects.
KNRC follows a policy of early mobilization of resources to start project preparatory
works much ahead of the ‘Appointed Date’. Its site management team first secures
the location for a site office/camp and locates the resources that can be mined. This
ensures that key equipment like crushers is in place before the Appointed Date.
However, KNRC does not start stone crushing in massive quantities immediately.
Thus, its inventory levels are relatively lower than its peers.
Exhibit 20: KNRC has the lowest inventory vs. peers
140
120
100
80
Days
60
40
20
0
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
KNR PNC Dilip Buildcon
Prudent bidding strategy but growth momentum to sustain

given significant opportunities in Southern India
KNRC started actively participating in NHAI orders only from FY16-FY17. While the
industry bid for NHAI projects at an average discount of 1% to NHAI cost estimates,
KNRC bid at 3% higher on average. In an industry characterized by players chasing
growth, KNRC has been an exception by restricting itself to profitable projects in its
core geographical focus areas.
This facet makes the management appear conservative, but we think this also makes
the company a relatively safer stock compared to its peers.
With significant opportunities coming up in Southern India, there is a scope for
KNRC to maintain its prudent bidding strategy while continuing to grow.
As highlighted earlier, most of the upcoming road projects are in AP, Maharashtra,
Karnataka and Tamil Nadu, which are KNRC’s core geographical focus areas. With
opportunities set to grow due to increased HAM awarding and most players
executing close to their execution capacity, we expect KNRC to maintain its premium
to NHAI estimated costs while sustaining its growth momentum.
Exhibit 21: Most of the incremental road projects are in AP, Maharashtra and TN with a fair mix of centre/state opportunities
Project stage Promoter Mode of implementation
Grand
Rs bn Conceptuali Developme Implementa Not
Centre States/Uts EPC HAM PPP Total
zation nt tion Disclosed
Pan India - - 3,600 3,600 - - - 3,600 - 3,600
Andhra Pradesh 1,021 703 647 763 1,608 1,625 715 - 31 2,371
Maharashtra 964 247 905 1,383 734 768 1,226 - 122 2,116
Uttar Pradesh 363 157 1,329 973 877 1,109 625 - 114 1,849
Tamil Nadu 1,727 98 24 802 1,047 1,071 747 - 31 1,848
Karnataka 795 157 164 1,063 53 17 1,030 - 70 1,116
Gujarat 97 256 400 517 235 328 348 45 32 752
West Bengal 438 66 101 434 172 147 382 - 76 605
Telangana 447 91 54 514 77 160 431 - - 592
Jammu & Kashmir 43 397 101 541 - 479 62 - - 541
Kerala 330 128 18 460 16 - 460 16 - 476
Madhya Pradesh 141 223 82 188 259 275 156 - 16 447
Assam - 224 200 424 - 424 - - - 424
Exhibit 22: Development-stage road projects in AP, J&K, Maharashtra, Gujarat, MP, UP,
Karnataka to benefit players like PNC, KNRC, Dilip Buildcon (Rs bn)
(Rs bn)
2,500
2,000
PNC, KNRC and Dilip Buildcon to
benefit as most DPR-ready road 1,500
projects are in their core focus
geographies. 1,000
500
Karnataka
Kerala
West Bengal
Pradesh
Pradesh
Tamil Nadu
Telangana
Gujarat
Assam
Others
Maharashtra
Madhya
Jammu &
Pradesh
Andhra
Kashmir
Uttar
Exhibit 23: For projects under development/concept stage, most land-ready projects
are in TN, AP, MP; Maharashtra, Karnataka are big opportunities but not land-ready
(Rs bn)
Planned Road projects value split state-wise as per land acquired
1,600
1,400
KNRC and Dilip Buildcon to 1,200
benefit as most land-ready road 1,000
projects are in TN, AP and MP. 800
600
400
200
0
Bengal
Kerala
Karnataka
Others
Pradesh
Telangana
Jammu &
Assam
Maharashtra
Kashmir
West
Uttar
Land acquired - No Land acquired - Yes
Additional upside from irrigation spending in the southern states

According to state budget documents, the states of Telangana, Andhra Pradesh,
Karnataka and Madhya Pradesh are planning large-scale irrigation projects. These
provide additional opportunities exceeding Rs 200bn in each state over the next few
years for KNRC. However, the company is not focusing on irrigation orders as these
are largely state government-funded projects. Nevertheless, it has taken up a large
irrigation order in Telangana to ensure that it has the qualifications in place once
centrally funded projects are available.
• Despite no mobilization advances in Telangana, payments have been regular so
far. KNRC management has stated that it has not faced any payment-related
issues in Telangana despite the state being financially weak. In Andhra Pradesh
and Karnataka, competition for projects is intense as they offer advances; these
jobs are also not technically challenging as they largely involve civil excavation
works.
• Attractive margins drive competition. Irrigation projects offer 14-15% EBITDA
margins and largely involve earthwork and excavation, requiring limited
technology inputs. This is attracting increased competition, which we believe
may eventually put pressure on margins.
Exhibit 24: Telangana, AP, Karnataka and MP have most of the upcoming irrigation
projects – to benefit players like KNRC, NCC, Megha and Dilip Buildcon (Rs bn)
(Rs bn)
2,500
2,000
1,500
KNRC, NCC, Megha and Dilip 1,000
Buildcon to benefit as most of 500
the large irrigation projects are 0
Karnataka
Odisha
West Bengal
Pan India
Jharkhand
Gujarat
Pradesh
Maharashtra
Uttar Pradesh
Telangana
Madhya
Tamil Nadu
Madhya Pradesh I
Pradesh
in their core focus geographies.
Andhra
Uttar Pradesh
Andhra Pradesh I
Strong balance sheet; outperforming larger diversified players

The strong balance sheet leads to attractive financing terms and the ability to
sustain capex and equity investment
KNRC has one of the lowest and most stable gearing levels in the sector. Further, its
working capital cycle is relatively shorter, allowing better cash flow generation. This
enables it to fund its capex requirements and equity commitments for future
projects.
It has a strong balance sheet with consistent cash flow generation. It has negligible
external debt at the parent level as of FY21. Since its inception, KNRC has
consistently generated cash flow that is large enough to cover its capex and
dividends. These trends are an exception in an industry characterised by
unsustainable debt burdens and poor cash generation records.
Low leverage allows KNRC to borrow at low interest rates and ensures faster
financial closure for HAM projects, while the industry struggles to achieve financial
closure due to weak balance sheet strength.
KNRC could finance capex and dividends entirely through OCF generation during
FY12-21. Strong cash inflows have led to standalone debt remaining at negligible
levels. Absolute debt at the standalone level is largely due to loans and advances
provided to BOT assets to reduce external debt at the consolidated level and save
overall interest costs for the group.
Exhibit 25: Within the roads sector, KNRC/PNCL/GR Infra have Exhibit 26: Most road companies witnessed margin expansion
outperformed on revenue growth vs. NCC/Sadbhav/Ashoka
(YoY Revenue EBITDA (margin)
growth)
25%
140%
120% 20%
100%
80% 15%
60%
40% 10%
20%
5%
0%
-20%
0%
-40%
FY10
FY18
FY07
FY08
FY09
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY19
FY20
FY21
FY14
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY15
FY16
FY17
FY18
FY19
FY20
FY21

Ashoka Buildcon GR Infra HG Infra
Sadbhav Engineering
Source: Company, Systematix Institutional Research, Bloomberg Source: Company, Systematix Institutional Research, Bloomberg
While RoE and RoCE may not be the best efficiency measures for construction
companies, given that these companies tend to be asset-light, they are reasonable
filters for relative performance. On that count, while the larger players have
struggled to maintain their RoEs/RoCes, smaller players like KNRC have done better
as they chose to stick to their core expertise and divest BOT/HAM assets.
Exhibit 27: KNRC has performed better than most companies… Exhibit 28: …in terms of RoCE
(%) (%)
45
60
40
35 50
30
40
25
20 30
15
20
10
5 10
0
0
-5
FY07
FY10
FY08
FY09
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
-10
FY09
FY14
FY19
FY07
FY08
FY10
FY11
FY12
FY13
FY15
FY16
FY17
FY18
FY20
FY21
KNR Constructions PNC Infratech Ashoka Buildcon
GR Infra HG Infra NCC Dilip Buildcon Sadbhav Engineering PSP Projects
Beyond the traditional growth and return ratios, we believe that cash generation is a
key metric for assessing how construction companies fare. As the charts below
depict, KNRC is amongst the few companies in the roads space with consistent
Thus, given its strong balance sheet and modest ambitions, KNRC is a better bet than
large diversified conglomerates with high ambitions – it is deleveraged, better
managed, has a demonstrated history of FCF and will likely fare better in the
upcoming awards.
Barring KNRC, most listed companies have struggled to generate or maintain a
consistent OCF/FCF pattern due to unrelated diversification and/or aggressive
growth campaigns.
Additionally, while companies like KNRC have negligible net interest expense as a
percentage of EBITDA, larger names like Dilip/Sadbhav have huge interest costs that
take away a large chunk of their EBITDA, leaving little for the bottom line or
distributable cash flow.
Exhibit 29: KNRC stands out for OCF/FCF generation as well as negligible interest cost as % of EBITDA
NCC 46 (5,216) 2,608 (23,627) (9,178) -11% 6% -51% -20% 60% 42%
PNC Infratech 75 18,742 15,467 6,960 8,419 25% 21% 9% 11% 12% 10%
Dilip Buildcon 82 (30,432) (18,210) (68,983) (34,723) -37% -22% -84% -42% 36% 36%
Ashoka Buildcon 27 18,704 11,090 12,562 7,241 69% 41% 46% 27% 13% 11%
GR Infra 169 20,036 15,025 227 (644) 12% 9% 0% 0% 9% 9%
HG Infra 41 7,737 6,599 (705) 718 19% 16% -2% 2% 17% 15%
PSP Projects 19 2,946 1,634 99 (540) 16% 9% 1% -3% 4% 4%
Source: Systematix Institutional Research, Company, Bloomberg
Some key reasons for KNRC’s outperformance compared to the rest of the sector:
• Strong focus on core markets (geography and segment-wise). For example, in a
bid to chase growth, companies have diversified away from their home markets -
where they tend to be stronger - or focus segments. This has led to lower
margins/execution challenges for these companies, as they lose control over the
actual execution and depend on sub-contractors.
that can be organically met by adding one’s own equipment/management
KNRC consistently focused on its core markets and the road/water segments, while
its peer group has been much more diversified. This depiction is despite suffering
from a survivorship bias, wherein a significant number of construction companies
that went bankrupt in the previous cycle do not even feature in this analysis.
Exhibit 30: State-wise order book split; >90% of projects in Exhibit 31: Segment-wise order book split; over 70% of projects in
Southern India the roads segment with irrigation being a new entry
100% 100%
90% 90%
80% 80%
70%
70%
60%
60%
50%
40% 50%
30% 40%
20% 30%
10% 20%
0% 10%
FY16 FY17 FY18 FY19 FY20 FY21 0%
AP & Telangana Tamil Nadu Karnataka FY16 FY17 FY18 FY19 FY20 FY21
Kerala Arunachal Pradesh Madhya Pradesh Roads Irrigation Others
With clusters in all key southern regions, KNRC is poised to grow

A split of its order book highlights that over 75% of the projects it undertook in the
past five years are in the southern states. Large, significant clusters in the major
southern states coupled with access to resources like quarries places KNRC in a
competitive position to execute projects in this area.
Exhibit 32: State-wise projects executed in the past five years
State wise projects executed in last 5 years
12%
31% Karnataka
10%
AP & Telangana
Madhya Pradesh
Kerala
12%
Tamil Nadu
Others
12%
23%

Prudent bidding strategy reflected in its lumpy order backlog growth
As evident in the chart below, KNRC has not chased order backlog growth at all
times. While its order backlog CAGR between FY12-16 was just 3.3%, it improved to
14.7% over FY16-20 and we estimate a further increase to 18.8% over FY20-23E.
It has slowly built up its execution capability and restricted itself to an executable
book: bill range of 2.5x, which is also usually the execution timeline for a typical road
project. At the same time, its revenue trend reflects a stable growth profile of 15%+
CAGR over FY12-21. Based on its current strong order backlog and L1 position, we
estimate a 26% revenue CAGR over FY21-23E.
Exhibit 33: Order book data since FY12 shows that KNRC has not Exhibit 34: …but still showcased steady and secure revenue
chased growth; had lumpy order wins growth
100 4.5 45 80%

90 4 40 70%
80 3.5 60%
35
70 3 50%
30
60 40%
2.5 25
50 30%
2 20
40 20%
30 1.5 15 10%
20 1 10 0%
10 0.5 5 -10%
0 0 0 -20%
FY18
FY12
FY13
FY14
FY15
FY16
FY17
FY19
FY20
FY21E
FY22E
FY23E
FY18
FY20
FY12
FY13
FY14
FY15
FY16
FY17
FY19
FY21E
FY22E
FY23E
Order Book (Rs bn) Book:Bill (x) (RHS) Revenue (Rs bn) Revenue Growth (%) (RHS)
Order backlog growth has converted to EBITDA growth

Unlike many peers, the orders have converted to EBITDA and more importantly
OCF/FCF. Despite the strong order growth in recent years, KNRC’s EBITDA margin has
improved as it has remained selective in its bidding strategy and continues to
execute the bulk of the work in-house. This has also resulted in its OCF and FCF (post
interest expenses) remaining high consistently.
Exhibit 35: Revenue growth led to EBITDA improvement Exhibit 36: EBITDA CAGR has been lumpy
9 25 50% 47.1%
8 45%
7 20
40%
6
15 35%
5
30%
4
10 25%
3 19.9%
20%
2 5
15%
1
0 0 10%
3.4%
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
5%
0%
EBITDA (Rs bn) EBITDA (%) (RHS) % CAGR over FY12-16 % CAGR over FY16-20 % CAGR over FY20-23
Source: Company, Systematix Institutional Research Source: Bloomberg, Systematix Institutional Research
Strong and consistently high OCF/FCF conversion from EBITDA
An average OCF (post interest expense) to EBITDA conversion ratio of 82% over F12-
20 speaks highly of KNRC’s strong control over its margins, working capital and
subsequently cash generation capabilities.
Similarly, its FCF (post interest expense) to EBITDA conversion ratio has been at ~45%
over FY12-20, which again is amongst the highest in the industry. Not surprisingly,
KNRC is among the few companies in the EPC space to have negligible interest
expenses and is practically debt-free at the parent level despite exposure to HAM
projects.
Exhibit 37: Consistent OCF and FCF generation (Rs bn) Exhibit 38: …driven by high conversion ratio from EBITDA/PAT
6 200%
5 150%
4
100%
3
50%
Rs bn
2
0%
1
0 -50%
-1 -100%
-2 -150%
FY18
FY12
FY13
FY14
FY15
FY16
FY17
FY19
FY20
FY21E
FY22E
FY23E
FY16
FY12
FY13
FY14
FY15
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
OCF - Net Interest expense FCF - Net Interest expense OCF/EBITDA FCF/PAT
20%+ RoE/RoCE with positive OCF/FCF is a rarity in the EPC space

While we would argue that for EPC players looking at RoE/RoCE makes sense only if
they are generating positive FCF, KNRC surpasses even that benchmark. It has
consistently been generating RoE/RoCE above 20% except for the impact of COVID-
19 on its FY20-21 financials. Given our strong revenue growth outlook over FY21-23E,
we estimate its RoE to revert to ~20% and RoCE at ~30% by FY23E.
One of the key drivers of KNRC’s strong RoE/RoCE and positive OCF/FCF generation
has been its control over the working capital cycle, allowing it to maintain negligible
debt levels. Its WC cycle has been low at an average of 60 days over the long term
though it has inched up post-COVID-19. We expect it to normalize again gradually.
150 0.3
35.0
30.0 0.3
120
25.0 0.2
90
20.0 0.2
15.0 60
0.1
10.0
30
0.1
5.0
0.0 0 0.0
FY14
FY12
FY13
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
FY23E
FY21E
FY22E
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
Order inflow 37,312 34,583 45,088 45,971 45,971
Revenues 21,373 22,442 27,026 32,549 40,863
EBITDA margin 20.0% 21.7% 19.8% 20.0% 19.9%
Order book 40,156 52,297 71,023 84,445 89,553
Ob to sales (x) 1.9 2.3 2.6 2.6 2.2
Valuation & View

With sustainable growth pegged at 8.5% and RoE of 18%, we value KNRC’s core EPC
business at 16x FY24E P/E to arrive at a fair value of Rs 356/share
KNRC has delivered a PAT CAGR of 20% over FY12-21 which is expected to increase
to 28% CAGR over the FY20-23E period given its strong order backlog (including L1
position currently). However, order inflows tend to be lumpy and yet another cycle
of lower order inflow in the subsequent years cannot be ruled out; this may impact
the company’s growth/return ratios.
EPC players trade at a wide valuation range over the cycle due to volatile order
20x depending on the company profile based on these parameters. However, KNRC
scores better compared to peers on sustainability, cash generation and leverage and
hence deserves to trade at the higher end of that valuation range.
Given the revenue visibility, increase in its PAT trajectory and rising OCF/FCF
generation, we value its EPC business at 16x FY24E PE. Additionally, we value its
current investments in BOT/HAM projects at 1x BV and arrive at a TP of Rs 356/share
for the stock (upside of 21%).
Exhibit 42: SoTP valuation yields a fair value of Rs 349
Value Value per
Particulars Segment Driver KNRC's share Multiple Basis
(Rs mn) share (Rs)
EPC Business Construction 5,571 100 16 89,131 317 16x FY24E P/E
Equity investment in HAM projects BOT/HAM 10,952 1 10,952 39 1x P/BV
Total 100,083 356
Exhibit 43: KNRC is trading above its long-term mean P/E; we still like it due to its
proven cautious strategy and consistent OCF/FCF generation
25
20
15
10
0
Jul-14
Jun-15
Nov-10
May-16
Apr-17
Feb-19
Nov-21
Feb-08
Jan-09
Dec-09
Sep-12
Mar-18
Jan-20
Aug-13
Dec-20
Oct-11
Key risks and risk mitigation measures

Rising competition in the roads EPC/HAM contracts
regional players vying for orders from NHAI. However, KNRC has been selective in its
bidding strategy and opted to stay focused in its focus areas of Southern India. It has
also remained prudent in its bids, often bidding for a premium compared to NHAI’s
own project cost estimate against discount quoted by competition.
Concentration risk in Southern India
KNRC is highly exposed to South India with almost its entire order backlog from
Telangana, Andhra Pradesh, Karnataka, Kerala and Tamil Nadu. At least for the next
five years, these states offer strong growth opportunities. Also, restricting itself to its
geographical strength allows KNRC to maintain its bid discipline and raw material
supplies.
Balance sheet exposure due to incremental projects in HAM
Road EPC players are facing higher balance sheet exposure as NHAI has been
increasingly awarding projects on HAM basis against EPC. KNRC has followed a
prudent model of selling completed projects and churning the sale proceeds into
new assets, thereby restricting its balance sheet exposure. KNRC is practically debt-
free at the standalone level due to its prudent capital allocation policy.
Steel and cement prices have run up sharply over the past year, exposing all road EPC
players to cost escalation. While government EPC contracts generally have a price
variation clause covering most such cost increases, not all increases may be passed
through. In the near-term, this may pose a margin risk for KNRC as well as other road
EPC players. In the longer term, however, new bids would ideally bake in such cost
escalation, thereby nullifying the higher cost.
YE: Mar (Rs mn) FY20 FY21E FY22E FY23E FY24E YE: Mar (Rs mn) FY20 FY21E FY22E FY23E FY24E
Net sales 22,442 27,026 32,549 40,863 46,317 Cash & bank balance 330 1,173 1,212 1,181 2,345
Employee expenses -1,252 -1,321 -1,585 -1,902 -1,997 Loans & advances 57 105 131 157 181
Other expenses 0 0 0 0 0 Other current assets 7,474 7,128 9,314 11,141 12,844
EBITDA 4,871 5,358 6,502 8,130 9,524 Total current assets 13,854 18,519 20,466 23,675 28,059
EBIT 2,952 3,915 5,126 6,381 7,555 Total assets 25,568 27,492 33,661 39,240 45,360
Interest expenses -474 -487 -325 -449 -509 Current liabilities 6,901 8,641 9,860 10,500 12,018
Other Income 566 496 325 350 400 Provisions 232 344 344 344 344
Taxes -685 -1,370 -1,290 -1,581 -1,874 Borrowings 2,141 7 1,000 1,000 -
Recurring PAT 2,359 2,554 3,835 4,701 5,572 Non-current liabilities 1,665 1,536 1,850 2,323 2,633
Margin % 10.5% 9.5% 11.8% 11.5% 12.0% Net Deferred Tax liability (1,610) (1,715) (1,715) (1,715) (1,715)
Non-recurring Items -107 -112 0 0 0 Total liabilities 9,329 8,814 11,339 12,452 13,280
Reported PAT 2,252 2,442 3,835 4,701 5,572 Paid-up capital 281 562 562 562 562
Recurring EPS (Rs) 8.4 9.1 13.6 16.7 19.7 Reserves & surplus 15,958 18,116 21,759 26,225 31,517
Cash EPS (Rs) 15.2 14.2 18.5 22.9 26.7 Net Worth 16,239 18,678 22,322 26,788 32,080
DPS (Rs) 0.5 - 0.7 0.8 1.0 Total equity & liabilities 25,568 27,492 33,661 39,240 45,360
Source: Company, Systematix Institutional Research Book Value/share (Rs) 57.7 66.4 79.4 95.2 113.7
Cash Flow Ratios

YE: Mar (Rs mn) FY20 FY21E FY22E FY23E FY24E YE: Mar FY20 FY21E FY22E FY23E FY24E
Chg in working capital -309 -2,004 -376 -2,126 -1,393 EV/EBITDA (x) 17.0 15.5 12.7 10.2 8.7
Other non-cash items 132 403 325 449 508 EV/Sales (x) 3.7 3.1 2.5 2.0 1.8
Total tax paid -844 -787 -1,290 -1,581 -1,874 Dividend Yield (%) 0.2% 0.0% 0.2% 0.3% 0.3%
Capital expenditure -2,120 -979 -2,200 -2,200 -2,200 RoCE (%) 22.3% 26.1% 28.3% 28.2% 28.2%
Free Cash Flow 1,822 2,001 2,961 2,573 4,456
Investments -1,098 1,424 -3,476 -1,919 -1,505 Fixed Asset turnover (x) 5.7 7.9 7.8 8.9 9.6
Investing Cash Flow -2,900 649 -5,676 -4,119 -3,705 Inventory days 28 27 33 33 33
Debt raised/(repaid) -344 -2,290 993 0 -1,000 Working Capital Cycle (days) 77 92 81 83 84
Dividend (incl. tax) -153 0 -192 -235 -279
Other Financing Cash Flow -401 -459 -325 -449 -509 Revenue Growth (%) 5% 20% 20% 26% 13%
Financing Cash Flow -898 -2,749 476 -685 -1,788 EBITDA Growth (%) 14% 10% 21% 25% 17%
Net chg in cash 144 880 -39 -30 1,163 EPS Growth, % -11% 8% 50% 23% 19%
Opening cash balance 130 330 1,173 1,212 1,181
Closing cash balance 330 1,173 1,212 1,181 2,345 Net Debt/Equity (x) 0.1 (0.1) (0.0) (0.0) (0.1)
Net Debt/EBITDA (x) 0.4 (0.2) (0.0) (0.0) (0.2)
Net Debt 1,811 -1,166 -212 -181 -2,345
EV 84,634 81,657 82,612 82,642 80,774
Systematix
PNC Infratech 20 December 2021
Play on the strong Infra capex pipeline in Uttar Pradesh

INITIATING COVERAGE PNC Infratech (PNCL) is a play on the strong potential for infrastructure capex roll-
Sector: Infrastructure Rating: BUY out in Uttar Pradesh (UP) - the most populous state in India and thus of significant
electoral importance. Decades of neglect in UP has created unparalleled
CMP: Rs 289 Target Price: Rs 347
opportunities across its various infrastructure segments, including roads. The
Stock Info incumbent governments – both centre and state have taken cognizance of the
Sensex/Nifty 58,117/17,325 electoral significance and are fast developing basic infrastructure in UP, including
Bloomberg PNCL IN expressways and rural/urban water supply. The company has a dominant presence
Equity shares (mn) 257 in the state with its well-established project clusters and equipment mobilization.
52-wk High/Low Rs 396/ Rs 158 It is also amongst the few companies to generate strong OCF/FCF (60-70% of
Face value Rs 2 EBITDA) while growing its revenues over 4x from Rs 12.7bn in FY12 to ~Rs 50bn in
M-Cap Rs 74bn/ USD 1bn FY21. It has a strong order book (and L1 position) of ~Rs 132bn as of Sep-21 (2.3x
3-m Avg traded value USD 1.5mn TTM book: bill), which provides strong visibility. We estimate PNCL to deliver ~16%
PAT CAGR over FY21-23E. It trades at 15.2x FY23E P/E. We initiate coverage on the
Financial Snapshot (Rs bn) stock with a BUY rating and a target price of Rs 347 (upside of 20%).
Revenue 58.1 64.2 70.6 The beneficiary of a strong order backlog and pipeline in UP
EBITDA 7.8 8.9 9.7
PNCL is relatively better placed than its peers to benefit from the infrastructure
PAT 4.1 4.9 5.5
capex in UP. Even as we are concerned about a potential slowdown in infrastructure
EPS (Rs) 16.1 19.1 21.5
ordering at the macro level, it stands out with a strong order book of Rs 132bn (2.3x
RoE % 13.3% 13.9% 13.8%
RoCE % 21.4% 21.9% 21.5% TTM book: bill as of Sep-21), providing revenue growth visibility. The company has a
P/E (x) 18.0 15.2 13.5 proven track record of timely execution, a debt-free balance sheet owing to strong
P/BV (x) 2.3 2.0 1.8 OCF/FCF generation and RoE/RoCE of 15%+ in an industry characterized by debt-
heavy and cash guzzling entities often penalized for delayed/poor execution.
Shareholding pattern (%)
Strong balance sheet to support growth
Promoter 56.1 56.1 56.1 It will continue to use its balance sheet to its advantage by gaining market share and
–Pledged - - - maintaining profitability in its HAM projects as it can secure financial closure at
FII 11.6 9.3 10.8 cheaper interest rates while its peers are struggling. We estimate a PAT CAGR of
DII 28.3 29.2 27.7 ~16% over FY21-23E. PNCL has invested significantly in capex and workforce over the
Others 4.0 5.4 5.4 past 3-4 years, anticipating this growth. Its OCF/FCF growth should sustain at similar
levels with a stable working capital cycle.
Stock Performance (1-year)
Outlook and valuations
250
230 We value the stock at 14x FY24E EPS and add 1x BV for its investment in its
210
190
BOT/HAM road projects. We prefer a valuation range of 12-18x P/E for the sector.
170 PNCL scores better than its peers on sustainability, cash generation and leverage and
150
hence, deserves the higher end of that valuation range.
130
110
90
Key risks: 1) Margin dilution due to rising competition in roads EPC/HAM contracts;
70 2) higher concentration in the state of UP; 3) potential impact on margins due to the
50
sharp rise in commodity prices.
Jan-21
Feb-21
Mar-21
Apr-21
Jul-21
Aug-21
Nov-21
Sep-21
Dec-20
May-21
Jun-21
Oct-21
Dec-21
PNCL SENSEX
Amar Kedia
+91 22 6619 8084
20 December 2021 PNC Infratech
Story in charts
Exhibit 1: UP has the third largest pipeline of road projects under the NIP, benefitting players like PNCL
Grand
Centre States/UTs EPC HAM PPP Total
Pan India - - 3,600 3,600 - - - 3,600 - 3,600
Andhra Pradesh 1,021 703 647 763 1,608 1,625 715 - 31 2,371
Maharashtra 964 247 905 1,383 734 768 1,226 - 122 2,116
Uttar Pradesh 363 157 1,329 973 877 1,109 625 - 114 1,849
Tamil Nadu 1,727 98 24 802 1,047 1,071 747 - 31 1,848
Karnataka 795 157 164 1,063 53 17 1,030 - 70 1,116
Gujarat 97 256 400 517 235 328 348 45 32 752
West Bengal 438 66 101 434 172 147 382 - 76 605
Telangana 447 91 54 514 77 160 431 - - 592
Jammu & Kashmir 43 397 101 541 - 479 62 - - 541
Kerala 330 128 18 460 16 - 460 16 - 476
Madhya Pradesh 141 223 82 188 259 275 156 - 16 447
Assam - 224 200 424 - 424 - - - 424
Exhibit 2: Significant opportunity landscape in Uttar Pradesh

Region Opportunity PNCL’s core competency in the region Risks
Uttar Pradesh Central projects

MoRTH pipeline of Rs 1.5-2trn over next Assured supply of aggregates from own
3-4 years mines in nearby states
GR Infra, Dilip Buildcon and L&T are also
✓ 15 greenfield projects Pre-existing clusters
active in large projects in the region
✓ 72 State Highways converted to Strong execution credentials and balance
National Highways sheet
✓ Ring roads in all major cities namely
Kanpur, Gorakhpur, Bareilly,
Moradabad and Meerut
✓ Bundelkhand Expressway (Delhi-
Jhansi)
✓ Delhi Yamnotri Expressway
State projects
Expressways
Significantly large prospects to limit
competition
Exhibit 3: PNCL has not chased growth; has had lumpy order wins Exhibit 4: ...but that has still yielded steady revenue growth
140 6 70 80%
120 70%
5 60
60%
100 50 50%
4
40%
80 40
3 30%
60 30 20%
2 10%
40 20 0%
20 1 -10%
10
-20%
0 0 0 -30%
FY13
FY18
FY12
FY14
FY15
FY16
FY17
FY19
FY20
FY21E
FY22E
FY23E
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
Order Book (Rs bn) Orderbook to sales (x) (RHS) Revenue (Rs bn) Revenue Growth (x) (RHS)
Exhibit 5: EBITDA has improved in line with revenues Exhibit 6: EBITDA CAGR to pick up on strong execution
10 20 35%
9 18
8 16 30%
7 14
6 12 25%
5 10
20%
4 8
3 6 15%
2 4
1 2 10%
0 0
FY18
FY12
FY13
FY14
FY15
FY16
FY17
FY19
FY20
FY21E
FY22E
FY23E
5%
0%
EBITDA (Rs bn) EBITDA (%) (RHS)
CAGR (FY13-16) CAGR (FY16-20) CAGR (FY20-23)
35
200 0.6
30 180
0.5
25 160
140
0.4
20 120
100 0.3
15
80
10 0.2
60
40
5 0.1
20
0 0 0.0
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E
Exhibit 9: Consistent OCF and FCF generation… Exhibit 10: …driven by high conversion ratio from EBITDA/PAT
8
250%
6 200%
150%
4
100%
2 50%
- 0%
-50%
(2)
-100%
(4) -150%
FY16
FY13
FY14
FY15
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
Company background
Based in Uttar Pradesh (UP), PNC Infratech (PNCL) is amongst India’s leading civil
construction companies. It has strong in-house execution capabilities, a proven track
record of early execution, a large equipment bank and a strong employee base. It is
the largest road construction company in UP and could be a beneficiary of sustained
infrastructure capex pick up in the northern states.
It has expertise in executing various infrastructure projects, including highways,
bridges, flyovers, power transmission lines, airport runways, development of
industrial areas and other infrastructure activities. However, its core focus area has
been road projects and it is now taking up water supply projects as well.
The company was incorporated in 1999 as PNC Construction Company Private Ltd
and was soon certified as a ‘Super Special’ class by Military Engineering Services. Its
first foray into highways was in 2001 when it independently executed the Agra
Gwalior section of the NH-3 highway in UP. PNCL received an early completion bonus
for its first project from NHAI in 2003 and has since then focused primarily on road
EPC projects as its core business. The company has developed capabilities to execute
Transmission & Distribution projects and rail EPC work (executing a section of the
Eastern DFC).
It has executed 70 major infrastructure projects spread across 13 states, of which 47
are road EPC projects; it is currently executing 25 projects. PNCL is also operating 6
BOT & 1 OMT project, comprising both toll & annuity assets and has a portfolio of 11
HAM projects of which, 7 HAM projects are currently under construction.
Exhibit 11: PNCL – Scope of EPC capabilities
Exhibit 12: Key milestones since inception
Year Events
1999 The company was incorporated as 'PNC Construction Company Private Limited'.
2001 Executed first independent project with the NHAI, being the four-laning of the Agra-Gwalior section of NH3 in UP.
2003 Received bonus from the NHAI for ahead of scheduled completion of four-laning of the Agra-Gwalior section independently.
2005 Executed first international airport runway project for the AAI in Kolkata.
2007 Awarded BOT road project by Madhya Pradesh Road Development Corporation Limited.
Commenced construction of power transmission lines comprising the construction project of approximately 350 Kms of 132/220 kv lines on a
2008
turn-key basis.
Received a contract to improve the Gurgaon-Nuh-Rajasthan Border (SH13) by the Haryana State Roads and Bridges Development Corporation
2009
Limited amounting to Rs 3,380mn.
2010 Awarded first independent BOT road project to improve the Gwalior-Bhind, MP/UP Border Road, NH92.
Received an investment of Rs 1,500mn from NYLIM Jacob Ballas.

2011
Executed four-laning of Jaora-Nayagaon section on SH31 in MP.
Executed a redevelopment and management project at Narela Industrial ahead of schedule.
2014 Awarded EPC contract of Agra-Lucknow Expressway Package-I for Rs 16.36bn.
Entered into a Collaborative MoU with POSCO Engineering and Construction India Private Limited.
Listed on the NSE and BSE following successful IPO.

2015
Achieved COD for three BOT-Toll Projects (Ghaziabad Aligarh, Kanpur-Kabrai and Bareilly- Almora) and commenced toll operations.
Completed 166 km long Raebareli-Jaunpur highway project on BOT-Annuity project more than 3 months ahead of schedule in February 2016.
2016
Awarded two major NH projects on EPC mode (i) Four laning of Nagina-Kashipur Section of NH 74 (ii) Four laning of Varanasi-Gorakhpur
section of NH-29 (Package II) for an aggregate contract price of Rs 20.2bn.
Awarded four highway projects on Hybrid Annuity Model (HAM) with an aggregate Bid Project Cost of Rs 50.35bn and one of them – Dausa-
Lalsot-Kauthun Section achieved financial closure well before time.
2017
Traffic opened on Agra-Lucknow Expressway in February 2017, eleven months ahead of schedule and achieved provisional completion in
October 2017.
Received Rs 582.3mn early completion bonus for Agra-Lucknow Expressway package in February 2018 from UP Expressways Industrial
Development Authority.
Awarded two contiguous packages of Purvanchal Expressway Project on EPC mode for a total cost of Rs 25.2bn.
2018
Received Rs 337.3mn towards Bonus Annuity in May 2018 from NHAI.
Awarded 4th Package of Nagpur-Mumbai Six Lane Expressway in Maharashtra on EPC basis for a contract price of Rs 19.99bn.
Received Provisional Completion Certificate for the Aligarh-Moradabad Section of NH-93 project, 73 days ahead of the scheduled completion
2019
date and entitled for early completion bonus.
2020 Secured Four New Highway Projects on HAM, from NHAI for aggregate bid project cost of Rs 65.96bn.
Key management team

Exhibit 13: Board of Directors
Name Designation Profile
Has over 40 years of experience in infrastructure and allied sectors. Before forming PNCL Infratech, he provided
Mr. Pradeep Chairman & integrated construction services for the infrastructure sector through PNC Construction Company, a sole
Kumar Jain Managing Director proprietorship firm in Agra. He has been on the Board of Directors since incorporation. His responsibilities include
overall administration and monitoring of projects and liaising with the government and non-government agencies.
Has over 30 years of sector experience with expertise in the construction of highways, airports, rail over bridges etc.
Mr. Chakresh Managing Director
He has been on the Board of Directors since inception. His responsibilities include overall administration of
Kumar Jain & CFO
procurement, finance & accounts, plant & equipment and relationship management activities of the company.
Has over 25 years of experience in business strategy, planning, investment, bidding, development, procurement,
execution, operation and management of infrastructure projects across sectors including highways, bridges, flyovers,
Mr. Yogesh
Managing Director airport runways, development of industrial areas, track construction for rail freight corridors and others. He has been
Kumar Jain
on the Board of Directors since inception. His expertise lies in business development, relationship management,
contract administration and project implementation from concept to commissioning.
Holds a bachelor’s degree in Civil Engineering and a master’s degree in Construction Technology & Management. He
has over 31 years of experience in the implementation and operation & management of infrastructure projects across
Mr. Anil Whole-time geographies and cultures. Before joining PNCL in the year 1999, he had worked with Progressive Constructions, Gulfar
Kumar Rao Director Engineering & Contracting, Oman, IRCON International, Somdatt Builders in various senior positions. He is also a
member of the Indian Roads Congress and the Institution of Engineers India. He has been a Director since November
17, 2000. His responsibilities include overall monitoring, execution and O&M of projects.
Manages his own consultancy besides being an Independent Director. He has around 40 years of experience and has
Mr. Chhotu Independent
held critical positions in foreign, public and private sector banks like Centurion Bank of Punjab, Bank of Punjab, Andhra
Ram Sharma Director
Bank, Citibank and Oriental Bank of Commerce. He is serving on the Board of Directors since October 25, 2007.
Holds a bachelor’s degree in Medicine and a Master’s degree in Surgery. His professional experience includes serving
Mr. Ashok Independent
as a professor in S.N. Medical College, Agra along with a rich experience in business and management. He is serving on
Kumar Gupta Director
the board of Directors since 2009.
Holds a Bachelor’s degree in Commerce and Law. She is also a qualified Chartered Accountant. Her professional
Ms. Deepika Independent
experience of 16 years includes financial management and taxation and audit activities. She is also a designated
Mittal Director
partner at M/s. PMA & Co., Chartered Accountants, Agra. She is serving as a Director on PNCL’s Board since 2014.
Has over 40 years of experience in Banking and Finance and served as Managing Director and Chief Executive officer of
Mr. Gauri Independent Punjab National Bank in 2015. Before this, he worked in Bank of India in various positions. He has vast experience in
Shanker Director domestic and international operations. His forte is Finance, Strategy and HR Development. He is serving as the Director
on PNCL’s Board since 2018.
Former Secretary to the Government of India; spent over three and half decades in the Indian Administrative Service,
Haryana Cadre. He has held various posts such as Additional Chief Secretary, Principal Secretary and Director of
various departments of the Haryana government. In his initial career, he worked as District Magistrate/Collector of five
Mr. Krishan Independent
districts in Haryana namely Bhiwani, Sonepat, Rewari, Faridabad and Karnal. At the Government of India, he had
Kumar Jalan Director
worked as Central Provident Fund Commissioner; major e-governance initiatives and activities were undertaken in the
Employee Provident Fund Organisation under his leadership. He has also worked as Joint Secretary in the Ministry of
Textiles, Government of India. He is serving as the Director on PNCL’s Board since 2019.
Civil Engineer with masters in planning from School of Planning & Architecture, New Delhi with specialization in
Transport Infrastructure. He also holds a post-graduate diploma in construction management. He has over three
decades of professional experience in planning, engineering, development, implementation and management of
Mr. Talluri infrastructure projects across sectors. He also extensively worked on structuring projects on PPP models. He joined
Whole-time
Raghupati PNCL in May 2014 as the Executive Vice President (Infra) and has been elevated to the company’s board since August
Director
Rao 2019 as a Whole Time Director. He oversees business development, monitoring & coordinating of implementation,
contract administration, overseeing operational projects on BOT-Toll, Annuity & HAM, arbitration and corporate
communications of the company. Before joining PNCL, he had worked with SREI Infra Finance Ltd as Senior Vice
President, IL&FS IDC Ltd. as Vice President and RITES (PSU) as a Deputy GM.
Annual report analysis

Exhibit 14: PNCL – Annual Report Analysis
Year Demand scenario & Outlook Key events Key performance indicators
During the year, PNCL completed two very Revenue growth 71%
Multiple headwinds impacted revenues.
challenging projects namely four-laning of 10 km long EBITDA growth 50%
Progress of ongoing works also suffered on
Dholpur-Morena Section of NH-3 including a major PAT growth 4%
account of the ban on inter-state
bridge on river Chambal, one of the highest river
transportation of minor minerals, sand mining Debt/Equity 0.12
FY17 bridges in the country and four laning of Agra bypass
etc. in the state of UP, particularly in the
connecting NH-2 and NH-3 amid very challenging ROE 21%
second half of the year.
working conditions with very complex structures. FCF (Rs mn) 1,700
In February 2018, it received Rs 582.3mn bonus for Revenue growth 25%

Enhanced Fund Based Limits from Rs 6.5bn to
the early completion of Agra-Lucknow Green Field
Rs 7.5bn which will enable to execute without EBITDA growth 67%
Expressway Project; it is the highest amount of early
financial constraints. PAT growth 62%
completion bonus ever received by the company.
Enhanced Non-Fund Based Limits from Rs 26.5bn to Reduced cost of borrowing on Working Debt/Equity 0.15
FY18 Rs 33.5bn which will enable to bid for higher no. of Capital Loans from 10.49% to 8.8%. ROE 27%
projects that are larger in size. FCF (Rs mn) (680)
Reduced cost of borrowing of operational projects
from 10.05% to 8.84%.
During the previous two years, for the majority of During FY19, PNCL secured five new orders of Revenue growth 11%
new projects secured by the company, physical Rs 58.6bn aggregate value amidst stiff EBITDA growth 11%
execution couldn’t be commenced due to prolonged competition, which is the highest ever new
delay in declaration of appointed dates by the PAT growth -2%
business secured by it in a single financial
authorities owning to persistent holdups in timely year. The prders include two contiguous Debt/Equity 0.16
acquisition and possession of vacant land by them. packages of Purvanchal Expressway in Uttar ROE 21%
Even though PNCL was geared to commence Pradesh worth Rs 25.2bn and one package of
execution in full swing, its hands were virtually tied- FCF (Rs mn) 330
Nagpur-Mumbai Super Communication
up to move ahead primarily due to the non- Expressway in Maharashtra for a contract Order backlog (Rs mn) 65,000
FY19 availability of required land and other impediments. price of Rs20bn.
Given the challenge, PNCL had assumed higher Order inflow (Rs mn) 37,312
responsibilities than envisaged in the contracts - Net working capital cycle days stood at 97
supporting the authorities in expediting the process days whereas debtor days stood at 73 days
of land acquisition and removal of encumbrances against 113 days and 136 days a year ago.
across projects. These concerted efforts made by
PNCL resulted in the declaration of appointed dates
and commencement of execution at most of the
awarded projects in the latter part of FY18 and during
FY19.
Key performance
Year Demand scenario & Outlook Key events Year
indicators
The company proposed to divest its entire 35% stake Revenue growth 5%
in Aligarh-Ghaziabad project to any interested PNCL has maintained a consistent OCF/FCF
EBITDA growth 14%
strategic investor. The divestment will reduce pattern, as it has stuck to its core expertise
exposure for lenders as well, resulting in enough and focused on domestic markets and PAT growth -11%
liquidity for funding the company’s future projects. ignored unrelated diversification as well as Debt/Equity 0.11
PNCL is also looking to monetize its other HAM aggressive growth campaigns.
FY20 projects. ROE 16%
PNCL is one of the few players in the road space in It has negligible net interest expense as a FCF (Rs mn) 1,863
India that have had consistent OCF/FCF (post interest percentage of EBITDA, thus having significant
expense) over FY2014-2019. distributable cash flow. Order backlog (Rs mn) 78,489
During FY20, PNCL's gross block was over Rs 10bn As on March-20, the net working capital days Order inflow (Rs mn) 34,583
which allows it to execute projects worth Rs 70bn. reduced to 57 days from 97 days in March-19.
The company follows a cluster-based approach with PNCL believes that the trajectory of road Revenue growth 1%
more than 66% of its total order book from Uttar capex going ahead will depend significantly EBITDA growth -8%
Pradesh. This has resulted in geographical advantage on asset monetization, as there are limits to
PAT growth -20%
and optimum utilization of resources, translating into the funds that NHAI can generate through 1)
superior operating leverage and profit margins. It also borrowings and 2) budgetary support from Debt/Equity (0.13)
allows the company to bid at competitive rates and cess (in light of increasing crude oil prices). In ROE 1353%
still maintain its margin and profitability profile. PNCL addition, the fiscal situation of state
FCF (Rs mn) 3,163
stands to benefit from its geographical advantage governments has deteriorated due to COVID-
given the robust project pipeline in North India, 19, which has further limited their ability to Order backlog (Rs mn) 116,480
especially in Uttar Pradesh. fund additional capex for road construction. Order inflow (Rs mn) 79,444
FY21 PNCL has a standalone net debt to equity ratio of
0.14x as of FY21. It will be financing equity It has financial and technical qualifications to
investment in HAM projects through own cash bid for a single EPC project up to a ticket size
generation and monetization of its BOT and HAM of Rs 40bn. It has invested more than Rs 8bn
projects. The company is evaluating a Share Purchase in the last five years in construction
Agreement with the preferred investors for the sale equipment and machinery, which gives it the
of a 100% aggregate stake in Ghaziabad Aligarh capability to execute projects worth of up to
Expressway. It is also looking to monetize its Rs 100bn annually.
completed and nearing completion HAM projects.
It has successfully diversified into the drinking water Prudent financial management has further
supply segment by bagging some large rural water allowed PNCL to reduce net working capital
supply projects under the Jal Jeevan Mission in UP. days to 51 days vs. 57 as on March-20.
Investment Analysis
Play on infrastructure capex pipeline in UP and other Northern parts
PNCL will be the key beneficiary of significant opportunities originating in UP
Uttar Pradesh is the largest state in terms of population in India and has a
disproportionately large impact on electoral outcomes. The incumbent government
has highlighted its intent for an extensive infrastructure capex program in UP.
There are central plans for Rs 1.5-2tn on roads to develop 15 greenfield highways
and convert 72 State Highways into National Highways. The state government is
pushing for its flagship Expressways as well.
In addition, ring roads are planned for all major cities. Of the state projects, the key
Purvanchal Expressway (Rs 260bn) is already awarded, while other expressways like
Bundelkhand and Yamnotri Expressway by the NHAI are in the pipeline.
PNCL is expected to be the prime beneficiary of these opportunities, as road capex
sustains its momentum gained since 2014 in UP and other parts of North India.
Exhibit 15: Significant opportunity landscape in Uttar Pradesh
Region Opportunity PNCL’s core competency in the region Risks
Assured supply of aggregates from own GR Infra, Dilip Buildcon and L&T are also
Uttar Pradesh Central projects
mines in nearby states active in large projects in the region
MoRTH pipeline of Rs 1.5-2trn over the
Pre-existing clusters
next 3-4 years
Strong execution credentials and balance
✓ 15 greenfield projects
sheet
✓ 72 State Highways converted to
National Highways
✓ Ring roads in all major cities namely
Kanpur, Gorakhpur, Bareilly,
Moradabad and Meerut
✓ Bundelkhand Expressway (Delhi-
Jhansi)
✓ Delhi Yamnotri Expressway
State projects
Expressways
Significantly large prospects to limit
competition
Well-positioned to take orders in Madhya Pradesh and Maharashtra as well

Madhya Pradesh offers a potential capex of Rs 2.0trn in Central roads over the next
3-4 years, with prominent projects being the Narmada Expressway and the Chambal
Expressway.
Maharashtra has the most ambitious state road plans. Even as the flagship project
Mumbai-Nagpur Expressway is already awarded and construction is underway, there
are plans for another 10,000km of state roads to be awarded over the next 3-4 years.
PNCL was amongst the few parties besides NCC-Megha JV and AFCONS that pre-
qualified in the bids for Mumbai-Nagpur Expressway in Maharashtra. This was
despite stringent norms imposed by the state, such as significant experience in
execution of expressways and the company not being under CDR (corporate debt
restructuring) or SDR (strategic debt restructuring). Though the norms were
subsequently relaxed to boost competition, the incident highlights PNCL’s capability
as well as intention to explore opportunities in the lucrative MP/Maharashtra
cluster.
Apart from the planned expressways in this region, there are ~10,000km of state
roads planned by the government. These projects offer additional opportunities for
clustering if PNCL secures one or more larger contracts in the region.
With opportunities set to grow due to increased HAM awarding even by States and
with most players executing close to their execution capacity, we expect PNCL to
keep up with its growth momentum and at the same time maintain its premium to
NHAI estimated costs.
Exhibit 16: Development-stage road projects – mostly in AP, J&K, Maharashtra, Gujarat,
MP, UP and Karnataka – benefit players like PNCL, KNRC and Dilip Buildcon
(Rs bn)
2,500
2,000
PNCL, KNRC and Dilip Buildcon
to benefit as most DPR-ready 1,500
road projects are in their core 1,000
focus geographies.
500
Karnataka
Kerala
West Bengal
Pradesh
Pradesh
Tamil Nadu
Telangana
Gujarat
Assam
Others
Maharashtra
Madhya
Jammu &
Pradesh
Andhra
Kashmir
Uttar
Exhibit 17: Maharashtra, UP and MP with over Rs 4.5trn of road projects are the key geographical focus areas
Grand
Centre States/UTs EPC HAM PPP Total
Pan India - - 3,600 3,600 - - - 3,600 - 3,600
Andhra Pradesh 1,021 703 647 763 1,608 1,625 715 - 31 2,371
Maharashtra 964 247 905 1,383 734 768 1,226 - 122 2,116
Uttar Pradesh 363 157 1,329 973 877 1,109 625 - 114 1,849
Tamil Nadu 1,727 98 24 802 1,047 1,071 747 - 31 1,848
Karnataka 795 157 164 1,063 53 17 1,030 - 70 1,116
Gujarat 97 256 400 517 235 328 348 45 32 752
West Bengal 438 66 101 434 172 147 382 - 76 605
Telangana 447 91 54 514 77 160 431 - - 592
Jammu & Kashmir 43 397 101 541 - 479 62 - - 541
Kerala 330 128 18 460 16 - 460 16 - 476
Madhya Pradesh 141 223 82 188 259 275 156 - 16 447
Assam - 224 200 424 - 424 - - - 424
Favourably placed in the core northern heartland belt

The company has followed a prudent bidding policy and remained focused on timely
execution. It has consistently delivered projects within schedule, leading to bonus
payouts by the NHAI.
Ownership of equipment leads to reliable execution
PNCL has a philosophy of equipment ownership and minimal leasing of assets. In
anticipation of the high growth and adoption of cement concrete roads by the NHAI,
the company has invested significantly in enhancing its gross block of plant and
machinery (~6x of FY12 levels) in recent years. However, unlike some peers, PNCL’s
asset utilization (defined as revenue/gross block) is significantly higher at 4x against
the industry range of 2.5-3x, suggesting that it has optimally utilized its assets.
Equipment ownership assumes significance not only due to increased control over
execution but also given: a) the increasing trend to construct cement concrete
highways at a time when cement concrete pavers are in short supply; this makes
leasing costly and unreliable; b) lead time for concrete pavers to arrive at the site
from order to import is now over six months, which can lead to delayed mobilization
for lesser equipped players.
Exhibit 18: Large investment in equipment bank… Exhibit 19: …and in Engineers on its payroll in recent years
14,000 5
12,000 7
5
12,000
4 10,000 6
10,000 4 5
8,000
8,000 3
4
3 6,000
6,000 2 3
4,000 2 4,000
2
1
2,000 2,000 1
1
0 0 0 0
FY16 FY17 FY18 FY19 FY20 FY21 1QFY22 FY16 FY17 FY18 FY19 FY20 FY21 1QFY22
Gross block (Rs mn) Revenue/Gross Block (x) (RHS) # of Engineers (Rs mn) Revenue/Engineer (x) (RHS)
Minimal or no sub-contracting increases execution and reliability

PNCL does not sub-contract any of the key activities of a project and uses its own
mines and equipment. The company has end-to-end project construction capabilities
extending from raw material mining to road marking, including stone quarrying
(boulders for aggregates). It has state-of-the-art stone crushers, transportation
vehicles, concrete and bituminous plants, paver finishers, rollers and other modern
kits, including road-marking equipment. These in-house capabilities provide PNCL
with control over execution, quality, time and project costs.
Exhibit 20: PNCL’s business model ensures significant control over execution and cost
▪ Ownership of a fleet of
modern equipment enables
quick mobilization besides ▪ Own / Leasing of Quarries
ensuring continuous availability helps in securing of raw material
of critical equipment and project completion within
▪ Reduces costs and facilitates scheduled time & budget
timely completion of projects
through enhanced control
▪ Controls the entire process

from conceptualization to
▪ Ensuring timely completion of
commissioning of a given
projects, reducing reliance on
project which helps in providing
third parties and lowering costs
customized solutions as per
clients’ specific requirements
Raw material security, especially aggregates, in a state like UP is a major positive

Based on our discussions with various companies, including but not limited to PNCL,
we gather that sourcing aggregates of requisite quantity and quality is a major
challenge in UP. In fact, compared with southern and central India, aggregates can
cost as much as 4x in UP due to the lack of mines in the state. However, PNCL has
been able to get around this issue by owning mines in the neighbouring states of
Uttarakhand, Rajasthan, Madhya Pradesh and Jharkhand. This has helped it source
more than 80% of its aggregates in-house, thereby reducing dependency on external
vendors. PNCL is seeking to boost its mining capacities further to enhance raw
material security in anticipation of the huge road capex in the state.
Clusters in almost all areas of UP place it relatively strongly than peers to gain from
road capex
Due to projects being undertaken, PNCL is already well-mobilized in eastern UP in
Gorakhpur, Varanasi and Ayodhya. Further, with projects in the Jhansi-Khajuraho
region, the company also has a presence in the relatively underdeveloped
Bundelkhand region. It is also mobilized near the major cities of Agra and Lucknow
due to works being executed in the region. This vast level of mobilization and
presence in the western parts of Bihar (bordering east UP) places PNCL in a sweet
spot to gain from the anticipated spend on road infrastructure, especially around
eastern UP.
Prudent in bidding compared to the industry

Has not chased order backlog; book: bill ratio (including L1) has been stable
Like KNRC, PNCL has kept away from aggressive bidding in the road EPC/HAM space.
It is only from FY16 that PNCL started actively participating in Central Government
road projects, as the era of aggressive bidding and slowdown gradually ended.
Exhibit 21: Disciplined bidding strategy; order backlog growth has come only with a
corresponding execution pick up
140 6
120 5
100
4
80
3
60
2
40
20 1
0 0
FY13
FY18
FY12
FY14
FY15
FY16
FY17
FY19
FY20
FY21E
FY22E
FY23E
Order Book (Rs bn) Orderbook to sales (x) (RHS)
Active empowerment of site management to resolve project-specific issues and

sustained promoter push
PNCL’s top management is involved in site activities to settle local issues and matters
concerning land availability. While land availability is NHAI’s responsibility, PNCL has
also empowered its site management at various projects to get involved in the
process. The management liaises with project authorities and local state officials to
accelerate the acquisition process and ensure timely disbursement of compensation
to people affected by its projects. Consequently, PNCL has obtained physical
possession of encumbrance-free stretches.
The management follows a rigorous project selection practice that covers factors like
geographic location, the degree of difficulty in executing projects in a particular area,
current and projected workload, the likelihood of additional work and the project’s
cost and profitability estimates. Projects are evaluated by making site visits that help
assess the economic availability of key construction material, manpower availability
and potential sites for quarries for aggregates. The company also assesses whether
there are religious sites along the route and protected or reserve forests. As a policy,
the company avoids bidding when such obstacles constitute a significant portion of
the project’s length.
The management also assesses the level of land availability (on the ground) for
projects before deciding to tender for them. Its business focus can be summed up as:
• Selective bidding for projects based on logistical proximity (helps in the
development of project clusters).
• Bids are based on pre-determined hurdle rates (EBITDA margin), thus lowering
the possibility of aggressive bids unless contiguous or located close to
neighbouring projects.
• Backward integration into mining of aggregates for a project.
Strong balance sheet leading to outperformance over larger

diversified players
A strong balance sheet enables attractive financing terms and the ability to sustain
capex and equity investment
PNCL is a net-debt free company at the standalone level, which allows it to secure
one of the most competitive interest rates for its HAM projects requirement – this is
one of the key advantages it enjoys. It has also been able to bring down its working
capital cycle sharply from an average of 100 days until FY16 (and 190 days in FY17) to
~60 days as of FY21.
While volatile, the company has converted about 72% of its EBITDA into OCF (post-
interest expense) since FY13, a feat still very few construction companies have
achieved. These trends are an exception in an industry characterised by
unsustainable debt burdens and poor records of cash generation.
Its net cash position allows it to borrow at low interest rates while ensuring faster
financial closure for its HAM projects, even as the industry struggles to achieve
financial closure due to inadequate balance sheet strength.
Post its IPO in 2015, the company has maintained its net-cash position and financed
capex and dividends entirely through OCF generation through FY16-21. This strong
track record enables it to fund capex requirements as well as equity commitments
necessary for its HAM projects.
The low leverage allows the company to borrow at interest rates as low as 7%, which
is as much as 200bps lower than its peers. It has achieved financial closure of its
hybrid annuity projects as well with minimal equity commitment (<10% of project
cost), while large parts of the industry struggle to achieve financial closure due to
inadequate balance sheet strength.
Exhibit 22: Within the roads sector, PNCL/KNRC/GR Infra have Exhibit 23: Most road companies witnessed margin expansion
outperformed on revenue growth vs. NCC/Sadbhav/Ashoka
(YoY Revenue EBITDA (margin)
growth) 25%
140%
120% 20%
100%
80% 15%
60%
10%
40%
20%
5%
0%
-20% 0%
-40%
FY10
FY18
FY07
FY08
FY09
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY19
FY20
FY21
FY14
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY15
FY16
FY17
FY18
FY19
FY20
FY21

Ashoka Buildcon GR Infra HG Infra
Sadbhav Engineering
Beyond the traditional growth and return ratios, we believe that cash generation is a
key metric for assessing how construction companies fare. As the charts below
depict, PNCL is amongst the few companies in the roads space with a consistent
Given its strong balance sheet, PNCL is a better bet against large diversified
conglomerates with high ambitions – it is deleveraged, has a demonstrated history of
FCF, is better managed and will likely fare better in the upcoming awards as well.
As against PNCL, we notice that most companies have struggled to generate or
maintain a consistent OCF/FCF pattern, mostly due to unrelated diversification and
aggressive growth campaigns.
We also note that companies like PNCL have negligible net interest expense as a
percentage of EBITDA, while larger names such as NJCC/Dilip/Sadbhav have huge
interest costs that take away a large chunk of their EBITDA, thus leaving little for the
bottom line or distributable cash flow.
Exhibit 24: KNRC stands out for OCF/FCF generation as well as negligible interest cost as % of EBITDA
NCC 46 (5,216) 2,608 (23,627) (9,178) -11% 6% -51% -20% 60% 42%
PNC Infratech 75 18,742 15,467 6,960 8,419 25% 21% 9% 11% 12% 10%
Dilip Buildcon 82 (30,432) (18,210) (68,983) (34,723) -37% -22% -84% -42% 36% 36%
Ashoka Buildcon 27 18,704 11,090 12,562 7,241 69% 41% 46% 27% 13% 11%
GR Infra 169 20,036 15,025 227 (644) 12% 9% 0% 0% 9% 9%
HG Infra 41 7,737 6,599 (705) 718 19% 16% -2% 2% 17% 15%
PSP Projects 19 2,946 1,634 99 (540) 16% 9% 1% -3% 4% 4%
PNCL’s outperformance compared to the rest of the sector is attributable to:

• Strong geography and segment-wise focus on its core markets. For example, in a
bid to chase growth, companies have diversified away from their home markets -
where they tend to be stronger - or focus segments. This has led to lower
margins/execution challenges for these companies, as they lose control of the
actual execution and depend on sub-contractors.
that can be organically met by adding one’s own equipment/management
PNCL consistently focused on its home market and the road/water segments, while
its peer group has been much more diversified. As of Jun-21, almost its entire order
backlog was from projects based in UP.

Prudent bidding strategy reflected in its gradual order backlog growth
As evident in the chart below, PNCL has not chased order backlog growth. Its order
backlog CAGR during FY13-16 was just -0.2% but subsequently improved to 16% over
FY16-21 though we estimate it to normalize again to 11% levels over FY20-23E.
It has slowly built up its execution capability and restricted itself to an executable
book: bill range of 2.5x, which is also usually the execution timeline for a typical road
project. At the same time, its revenue trend reflects a stable growth profile of ~16%
CAGR over FY12-21. Based on its current strong order backlog and L1 positions, we
estimate a 14% revenue CAGR over FY21-23E.
Exhibit 25: Order book data since FY12 shows PNCL has not chased Exhibit 26: …but still showcased steady and secure revenue
growth; has had lumpy order wins… growth
140 6 70 80%
120 70%
5 60
60%
100 50 50%
4
40%
80 40
3 30%
60 30 20%
2 10%
40 20 0%
20 1 -10%
10
-20%
0 0 0 -30%
FY13
FY18
FY12
FY14
FY15
FY16
FY17
FY19
FY20
FY21E
FY22E
FY23E
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
Order Book (Rs bn) Orderbook to sales (x) (RHS) Revenue (Rs bn) Revenue Growth (x) (RHS)
Order backlog growth has converted to EBITDA growth

Unlike many peers, the orders have converted to EBITDA and more importantly
OCF/FCF for PNCL. Despite the strong order growth in recent years, PNCL’s EBITDA
margins have remained strong as it was selective in its bid strategy and continues to
execute the bulk of the work in-house. This has also resulted in its OCF and FCF (post
interest expenses) remaining high consistently.
Exhibit 27: EBITDA has improved in line with revenues Exhibit 28: EBITDA CAGR to pick up on strong execution
10 20 35%
9 18
8 16 30%
7 14
6 12 25%
5 10
20%
4 8
3 6 15%
2 4
1 2 10%
0 0
FY18
FY12
FY13
FY14
FY15
FY16
FY17
FY19
FY20
FY21E
FY22E
FY23E
5%
0%
EBITDA (Rs bn) EBITDA (%) (RHS)
CAGR (FY13-16) CAGR (FY16-20) CAGR (FY20-23)
Strong and consistently high OCF/FCF conversion from EBITDA
The average OCF (post interest expense) to EBITDA conversion ratio of 74% over
FY13-20 speaks highly of PNCL’s strong control over its margins, working capital and
subsequently cash generation capabilities.
Similarly, its FCF (post interest expense) to EBITDA conversion ratio has been at 64%
over FY13-20, which again is amongst the highest in the industry. Not surprisingly,
PNCL is among the few companies in the EPC space to have negligible interest
expenses and is debt-free at the parent level despite exposure to HAM projects.
35
200 0.6
30 180
0.5
160
25
140
0.4
20 120
100 0.3
15
80
10 0.2
60
40
5 0.1
20
0 0 0.0
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E
15-20% RoE/RoCE with positive OCF/FCF is a rarity in the EPC space

While we would argue that for EPC players looking at RoE/RoCE makes sense only if
they are generating positive FCF, PNCL surpasses that benchmark. It has consistently
been generating RoE/RoCE of ~15% except for the impact of COVID-19 on its FY20-21
financials. Given our strong outlook on its revenue growth over FY21-23E, we
estimate its RoE to revert to 15% and RoCE at ~24% by FY23E.
One of the key drivers of PNCL’s strong RoE/RoCE and positive OCF/FCF generation
has been its control over the working capital cycle, allowing it to maintain negligible
debt levels. In recent years, PNCL has pulled back its WC cycle sharply from a high of
190 days in FY17 to ~60 days as of FY21.
Exhibit 31: Consistent OCF and FCF generation… Exhibit 32: …driven by high conversion ratio from EBITDA/PAT
8 250%
6 200%
150%
4
100%
2 50%
- 0%
-50%
(2)
-100%
(4) -150%
FY16
FY13
FY14
FY15
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
Order inflow 79,889 12,969 79,444 59,583 65,541
Revenues 30,969 48,779 49,254 58,090 64,233
EBITDA margin 14.8% 15.7% 13.7% 13.4% 13.8%
Order book 122,100 86,290 116,480 117,973 119,282
Ob to sales (x) 3.9 1.8 2.4 2.0 1.9
Valuation & view

With sustainable growth pegged at 8.5% and RoE of 14%, we value PNCL’s core EPC
business at 14x FY24E P/E to arrive at a target price of Rs 347/share (upside of 20%)
PNCL has delivered a PAT CAGR of 19% over FY12-21 and is well placed for a 16%
CAGR over FY21-24E given its strong order backlog (including L1 positions currently).
However, as has been in the past, order inflows tend to be lumpy and yet another
cycle of lower order inflow in the subsequent years cannot be ruled out; this may
impact the company’s growth or return ratios.
EPC players trade at a wide valuation range over the cycle due to volatile order
20x depending on the company profile based on these parameters. However, PNCL
scores better compared to its peers on sustainability, cash generation and leverage
to deserve the higher end of that valuation range despite its peak order backlog.
We value the stock at 14x FY24E P/E given that its long-term growth may settle
around 8.5% with RoE of 14% levels and assuming that it continues to convert this
into strong OCF/FCF generation. Together with 1x BV for its current investments in
BOT/HAM projects, we arrive at a target price of Rs 347/share (upside of 20%) for
the stock and initiate with a BUY rating.
Exhibit 34: SoTP Valuation
Value
Particulars Segment Driver PNCL's share Multiple Value per share (Rs) Basis
(Rs mn)
EPC Business Construction 5,503 100 14 77,046 300 14x FY24E P/E
BOT/HAM Projects BOT/HAM 11,864 100 1 11,864 46 1x P/BV
Total 88,910 347
Exhibit 35: PNCL deservedly trading above its long-term mean P/E
25
20
15
10
0
Nov-15
Nov-18
Nov-21
Nov-16
Nov-17
Nov-19
Nov-20
Sep-17
Jul-15
Jul-16
Jul-17
Jul-18
Jul-19
Jul-20
Jul-21
Sep-15
Sep-16
Sep-18
Sep-19
Sep-20
Sep-21
May-15
Mar-16
May-16
Mar-17
Mar-18
May-17
May-18
Mar-19
May-19
Mar-20
Mar-21
May-20
May-21
Jan-18
Jan-21
Jan-16
Jan-17
Jan-19
Jan-20
Jan-22

Divestment of BOT assets can potentially add value

PNCL’s BOT road assets should see healthy traffic growth; they are by and large self-
financed. Since the company has good road assets, divestments can free up locked-in
capital and ensure stable annuity-like income from potential O&M contracts in these
assets, which PNCL may enter with a potential buyer.
Key risks and risk mitigation measures

Rising competition in roads EPC/HAM contracts
regional players vying for orders from NHAI. However, PNCL has been selective in its
bidding strategy and opted to stay focused in its focus areas of Northern India. It has
also remained prudent in its bids, often bidding for a premium compared to NHAI’s
own project cost estimate against discount quoted by competition.
Concentration risk in Northern India
PNCL is highly exposed to Northern India with almost its entire order backlog from
Uttar Pradesh and adjoining states. While it has occasionally taken up projects in
states like Maharashtra, UP offers strong growth opportunities for the next five
years. Also, restricting itself to geographical areas where it is strong allows PNCL to
maintain its bid discipline and raw material supplies.
Balance sheet exposure due to incremental projects in HAM
All road EPC players face higher balance sheet exposure as NHAI has been
increasingly awarding projects on a HAM basis against EPC. PNCL has followed a
prudent model of selling completed projects and churning the sale proceeds into
new assets, thereby restricting its own balance sheet exposure. As of date, it is debt-
free at the standalone level due to its prudent capital allocation policy.
Steel and cement prices have run up sharply over the past year, exposing all road EPC
players to cost escalation. While government EPC contracts generally have a price
variation clause covering most such cost increases, not all increases may be passed
through. In the near-term, this may pose a margin risk for PNCL as well as other road
EPC players. In the longer term however, new bids would ideally bake in such cost
escalations, thereby nullifying the higher cost.
Net sales 48,779 49,254 58,090 64,233 70,595 Cash & bank balance 7,401 7,683 5,252 4,796 4,982
Employee expenses -2,651 -2,791 -3,070 -3,377 -3,715 Loans & advances 5,988 6,829 7,749 8,718 9,807
Other expenses -4,775 -4,771 -5,809 -6,263 -6,883 Other current assets 5,555 6,842 7,397 8,321 9,362
EBITDA 7,643 6,728 7,793 8,859 9,734 Total current assets 29,652 33,282 37,905 41,193 45,426
EBIT 6,379 5,604 6,298 7,248 7,976 Total assets 42,888 48,344 56,721 63,648 71,374
Interest expenses -1,144 -771 -1,162 -1,092 -1,059 Current liabilities 16,290 16,717 21,251 23,769 26,535
Other Income 885 752 842 931 1,059 Provisions 108 238 245 253 260
Taxes -1,517 -1,966 -1,853 -2,197 -2,472 Borrowings 2,238 2,529 2,529 2,529 2,529
Recurring PAT 4,603 3,619 4,125 4,891 5,503 Net Deferred Tax liability (1,215) (225) (225) (225) (225)
Margin % 9.4% 7.3% 7.1% 7.6% 7.8% Total liabilities 17,422 19,259 23,800 26,325 29,099
Non-recurring Items 0 0 0 0 0 Paid-up capital 513 513 513 513 513
Reported PAT 4,603 3,619 4,125 4,891 5,503 Reserves & surplus 24,953 28,572 32,408 36,809 41,762
Recurring EPS (Rs) 17.9 14.1 16.1 19.1 21.5 Net Worth 25,466 29,085 32,921 37,322 42,275
Cash EPS (Rs) 22.9 18.5 21.9 25.3 28.3 Total equity & liabilities 42,888 48,344 56,721 63,648 71,374
DPS (Rs) 1.2 0.5 1.1 1.9 2.1 Book Value/share (Rs) 99.3 113.4 128.3 145.5 164.8
Cash Flow Ratios

Chg in working capital 1,823 -2,261 -2,512 -1,219 -1,274 EV/EBITDA (x) 9.7 11.0 9.5 8.4 7.6
Other non-cash items 531 282 1,162 1,092 1,059 EV/Sales (x) 1.5 1.5 1.3 1.2 1.1
Total tax paid -1,612 -1,998 -1,853 -2,197 -2,472 Dividend Yield (%) 0.4% 0.2% 0.4% 0.7% 0.7%
Capital expenditure -909 -1,820 -1,250 -1,250 -1,251 RoCE (%) 29.8% 22.0% 21.4% 21.9% 21.5%
Free Cash Flow 7,217 912 3,020 5,125 5,795
Investments -1,609 -1,193 -4,000 -4,000 -4,000 Fixed Asset turnover (x) 8.3 7.5 9.2 10.7 12.9
Investing Cash Flow -2,307 -2,751 -5,250 -5,250 -5,251 Inventory days 29 37 49 49 49
Debt raised/(repaid) -482 727 0 0 0 Working Capital Cycle (days) 44 64 70 70 71
Dividend (incl. tax) -309 0 -289 -489 -550
Other Financing Cash Flow -725 -653 -1,162 -1,092 -1,059 Revenue Growth (%) 58% 1% 18% 11% 10%
Financing Cash Flow -1,516 74 -1,451 -1,581 -1,609 EBITDA Growth (%) 67% -12% 16% 14% 10%
Net chg in cash 4,304 55 -2,431 -456 186 EPS Growth, % 42% -21% 14% 19% 13%
Opening cash balance 3,097 7,628 7,683 5,252 4,796
Closing cash balance 7,401 7,683 5,252 4,796 4,982 Net Debt/Equity (x) (0.2) (0.2) (0.1) (0.1) (0.1)
Net Debt/EBITDA (x) (0.7) (0.8) (0.3) (0.3) (0.3)
Net Debt -5,162 -5,154 -2,723 -2,267 -2,453
EV 68,978 68,986 71,417 71,873 71,687
ANNEXURE
Exhibit 1: Top-20 road projects in the NIP (Rs bn)
Sr. Project Spent Project Land
Name Current Status State Project Type Project Brief
No Cost till Mar-19 Status Acquired?
Pradhan Mantri Gram Sadak SH/District New
1 Implementation Pan India 3,600 2,040 Not Disclosed No
Yojana Road construction
Nagpur- Mumbai Super NH/ New
2 Implementation Maharashtra 553 85 Notice to Proceed Yes
Communication Expressway Expressway construction
NH/ New
3 Ganga Expressway Implementation Uttar Pradesh 415 - Notice to Proceed No
Expressway construction
MH/KT Border-Bangalore Road SH/District New
4 Conceptualization Karnataka 312 - Idea Stage No
Development Road construction
Tamil Nadu District Roads SH/District
5 Conceptualization Tamil Nadu 310 - Idea Stage Upgradation Yes
Upgradation Road
Tamil Nadu District Roads SH/District
6 Conceptualization Tamil Nadu 240 - Idea Stage Upgradation Yes
Upgradation Road
Andhra Pradesh Rural Areas Road Andhra DPR/Feasibility in SH/District New
7 Development 240 - No
Upgradation Pradesh Progress Road construction
Andhra Pradesh Rural Areas Road Andhra DPR/Feasibility in SH/District New
7 Development 240 - No
Upgradation Pradesh Progress Road construction
Amravati- Mydukur Road Andhra SH/District New
8 Conceptualization 233 - Idea Stage No
Development Pradesh Road construction
Purvanchal Expressway Road NH/ New
9 Implementation Uttar Pradesh 225 84 Notice to Proceed No
Construction Expressway construction
Andhra SH/District New
10 GVMC & VMC Road Construction Conceptualization 195 - Idea Stage Yes
Pradesh Road construction
Andhra SH/District
11 Andhra Pradesh Road Upgradation Implementation 173 - Notice to Proceed Upgradation No
Pradesh Road
JH/WB Border-Kolkata Road SH/District New
12 Conceptualization West Bengal 167 - Idea Stage No
Andhra SH/District
13 Andhra Pradesh Road Upgradation Implementation 166 - Notice to Proceed Upgradation No
Pradesh Road
Mukhya Mantri Gram Sadak Yojana SH/District New
14 Implementation Gujarat 153 - Notice to Proceed No
Implementation Road construction
Bundelkhand Expressway Road NH/ New
15 Implementation Uttar Pradesh 148 6 Notice to Proceed No
Construction Expressway construction
SH/District New
16 Chennai-Trichy Road Development Conceptualization Tamil Nadu 145 - Idea Stage No
Road construction
Hyderabad-TL/MH Border Road SH/District New
17 Conceptualization Telangana 142 - Idea Stage No
Madhya DPR/Feasibility in SH/District New
18 MP Road Construction Development 141 - Yes
Pradesh Progress Road construction
TL/AP Border-AP/KT Border Road Andhra SH/District New
19 Conceptualization 134 - Idea Stage No
Development Pradesh Road construction
SH/District New
20 Dhule-Thane Road Development Conceptualization Maharashtra 127 - Idea Stage No
Road construction
Exhibit 2: Top-10 ports proposed under NIP (Rs bn)
Total
Sr. Mode of
Name Current Status State Project Project Status Project Brief
No Implementation
Cost
1 Vadhvan Port Conceptualization Maharashtra 161 EPC Not Disclosed Development of Port
Transhipment Port at Andaman & DPR/Feasibility Study in
2 Development 50 PPP Development of Port
South Bay Nicobar Progress
Machilipatnam Deep Andhra
3 Conceptualization 47 EPC Not Disclosed Development of Port
Water Port Pradesh
Prakasam Andhra
Ramayapatnam Port Pradesh
Bhavanapadu Andhra
Greenfield Port Pradesh
Terminal 4 - Phase 2 DPR/Feasibility Study in
6 Development Maharashtra 32 PPP Development of Terminal
JNPT Container Progress
Deepening of Inner
DPR/Feasibility Study in
7 Harbour For Handling Development Odisha 30 EPC Development of Harbour
Progress
Construction
8 Kutch SPM Terminal Implementation Gujarat 28 PPP Not Disclosed Development of Terminal
Kona village Greenfield Andhra
9 Development 26 PPP DPR Approved Development of Port
Port Pradesh
Greenfield commercial Andhra Financial Closure
10 Implementation 21,230 PPP Development of Port
Kakinada SEZ Port Pradesh Achieved
Exhibit 3: Key projects offered in airports under NIP

Sr. Project Cost Mode of
Name Current Status Project Status
No (Rs bn) Implementation
1 Pune Airport Development Development 190 PPP DPR Approved
2 Navi Mumbai Airport Pre-Development Development 163 PPP Not Disclosed
3 Bangalore Airport Expansion Development 162 PPP Not Disclosed
4 Sriperumbudur Airport Development Conceptualization 150 EPC Idea Stage
5 Bhiwadi International Airport Development Conceptualization 107 EPC Idea Stage
6 Delhi Airport Expansion Implementation 98 EPC Notice to Proceed
DPR/Feasibility in
7 Jewar Airport Development Development 86 PPP
Progress
Financial Closure
8 Hyderabad Airport Expansion Implementation 59 PPP
Achieved
9 Vellore Aerospace Park Development Conceptualization 30 EPC Idea Stage
10 Coimbatore Airport Expansion Conceptualization 30 EPC Idea Stage
11 Madurai Airport Expansion Conceptualization 30 EPC Idea Stage
12 Mopa Airport Development Development 30 PPP Not Disclosed
13 Bhogapuram Airport Development Development 30 PPP Not Disclosed
14 Campbell Bay Airport Development Conceptualization 25 EPC Idea Stage
15 Port Blair Airport Development Conceptualization 25 EPC Idea Stage
16 Chennai Airport Upgradation Implementation 25 EPC Notice to Proceed
17 Nagpur Airport Upgradation Development 17 PPP DPR Approved
18 Dholera International Airport Development Conceptualization 17 EPC Idea Stage
Exhibit 4: Top-20 urban public transport projects planned under NIP (Rs bn)
Sr.
Name Current Status Project Cost Spent till Mar-19 Project Status Project Type
No
1 Chennai Metro Rail Phase II Development 692 - DPR Approved Metro
Integrated Transport
2 Tamil Nadu Mass Public Transit Conceptualization 500 - Idea Stage
Hub
3 Delhi Metro Rail Phase III Development Implementation 486 435 Notice to Proceed Metro
4 Delhi-Gurugram SND NCRTC Development 362 0 DPR Approved Metro
5 Navghar-Balavali Multi Modal Corridor Development 348 - DPR Approved Metro
6 MUTP-III A Procurement Development 337 0 Design work Metro
7 Delhi-Ghaziabad-Meerut RRTS Implementation 303 2 Notice to Proceed Metro
8 Metro Rail Construction Conceptualization 300 - Idea Stage Metro
10 Bangalore Metro Rail Phase-2 Implementation 264 47 Notice to Proceed Metro
11 Delhi Metro Rail Phase-IV Development Implementation 249 - Notice to Proceed Metro
12 Mumbai Metro Rail Construction Implementation 231 94 Notice to Proceed Metro
13 Metro Lite Rail Development Conceptualization 210 - Idea Stage Metro
TN Integrated Urban Road
14 Conceptualization 150 - Idea Stage Road/Traffic Infra
Development
Integrated Transport
15 TN Transport Infrastructure Expansion Conceptualization 150 - Idea Stage
Hub
16 Wadala-Kasarwadavali Metro Rail Implementation 145 2 Notice to Proceed Metro
17 Patna Metro Rail Construction Implementation 134 - Notice to Proceed Metro
18 Thane Metro Rail Construction Development 131 - DPR Approved Metro
19 Delhi Metro Rail Phase-IV Development Development 131 - DPR Approved Metro
20 Surat Metro Rail Construction Implementation 120 0 Notice to Proceed Metro
Exhibit 5: Top-10 Water treatment projects in the NIP (Rs bn)

Funding source
Sr. Project Project
Name Current Status State Promoter External
No Cost Status Centre State
Aid
JJM Rural Implementation
1 Implementation Pan India Centre 3,600 Not Disclosed 2,090 1,510 -
Project
Jal Jeevan Mission DPR/Feasibility
2 Development Pan India Centre 2,790 798 2,000 -
Implementation Project Study in Progress
Piped Water Supply
3 Conceptualization Tamil Nadu States/UTs 75 Idea Stage - 75 -
Infrastructure Project
Proposal for Water Supply DPR/Feasibility
4 Development Kerala States/UTs 73 - - -
Scheme Project Study in Progress
Production Components DPR/Feasibility
5 Development Kerala States/UTs 62 - - -
Distribution Project Study in Progress
Special Infrastructure Water
6 Implementation West Bengal States/UTs 45 Notice to Proceed 6 39 -
Supply Projects
Kolkata Urban Resilience
7 Implementation West Bengal States/UTs 45 Notice to Proceed - 13 31
Improvement Project
External Aided Water Supply
8 Implementation West Bengal States/UTs 39 Notice to Proceed 1 11 27
Infrastructure Projects
Godda Water Supply DPR/Feasibility
9 Development Jharkhand States/UTs 34 - - -
Infrastructure Project Study in Progress
Construction of Desalination Andhra
10 Conceptualization States/UTs 30 Idea Stage - - -
Plant Project Pradesh
Exhibit 6: Top-5 Sewage collection projects in the NIP (Rs bn)
Sr. Project Project Funding source
Name Current Status State Promoter
No Cost Status Centre State External Aid
Waste Water Management
Project
Water Supply and Septage Andhra
2 Implementation States/UTs 52 Notice to Proceed - - 26
Management Project Pradesh
Chennai Sewerage
Infrastructure Project
Ahmedabad Construction of
4 Development Gujarat States/UTs 15 DPR Approved - 15 -
ETP Project
Smart City Upgradation and DPR/Feasibility
5 Development Chandigarh Centre 9 - - -
Sewage Development Project Study in Progress
Exhibit 7: Top-20 irrigation projects in the NIP (Rs bn)

Sr. Project Spent Project Land
Name Current Status State Project Type Promoter
No Cost till Mar-19 Status Acquired?
Kaleshwaram Irrigation Notice to River/
1 Implementation Telangana 805 501 States/UTs No
Development Project Proceed Stream
Nethravati River Diversion Idea River/
2 Conceptualization Karnataka 630 - States/UTs No
Scheme Implementation Project Stage Stream
Godavari-Cauvery Linking Andhra Pradesh |
Idea
3 Development Project Conceptualization Tamil Nadu | 606 - Interlinking Centre No
Stage
Telangana
Polavaram Irrigation Project Notice to River/
4 Implementation Andhra Pradesh 555 160 Centre No
Proceed Stream
Mission Bhagiratha Irrigation Notice to River/
Project Proceed Stream
Bridging Irrigation Incentivization Idea River/
6 Conceptualization Pan India 374 - Centre Yes
Scheme Implementation Project Stage Stream
Palamuru Ranga Reddy Lift Notice to River/
Irrigation Project Proceed Stream
Ken-Betwa Linking Development Madhya Pradesh I Idea
8 Conceptualization 351 - Interlinking Centre No
Project Uttar Pradesh Stage
Sardar Sarovar Irrigation Project Notice to River/
9 Implementation Gujarat 315 283 Centre No
Proceed Stream
Tanks and Wells Rehabilitation Idea River/Strea
10 Conceptualization Tamil Nadu 225 - States/UTs Yes
Project Stage m
Water Bodies Propagation Idea Micro/Drip
11 Conceptualization Tamil Nadu 200 - States/UTs Yes
Development Project Stage Irrigation
Sharavati River Diversion Scheme Idea River/
Implementation Project Stage Stream
HNSS Construction Project Notice to River/
13 Implementation Andhra Pradesh 168 123 Centre No
Proceed Stream
Vyarama Major Irrigation Project DPR/Feasi
bility River/
14 Development Madhya Pradesh 146 - States/UTs No
Study in Stream
Progress
Babu Jagjeevan Ram Uttarandhra Idea River/
15 Conceptualization Andhra Pradesh 145 - States/UTs No
Sujala Sravanthi Project Stage Stream
PMKSY-HKKP-CADWM Notice to River/
16 Implementation Pan India 135 46 Centre Yes
Development Project Proceed Stream
Sita Rama Lift Irrigation Notice to River/
Development Scheme Proceed Stream
Gosikhurd [NP] Irrigation Project Notice to River/
18 Implementation Maharashtra 128 72 Centre No
Proceed Stream
NRCP Development Projects Notice to River/
19 Implementation Pan India 127 2 Centre No
Proceed Stream
Aghanashini Diversion Scheme Idea River/
Implementation Project Stage Stream
Institutional Equities Team

Nikhil Khandelwal Managing Director +91-22-6704 8001 nikhil@systematixgroup.in
Navin Roy Vallabhaneni President & Head – IE +91-22-6704 8065 navin@systematixgroup.in
Equity Research
Analysts Industry Sectors Desk-Phone E-mail
Amar Kedia Infra, Cap Goods, Logistics, Real Estate +91-22-6704 8084 amarkedia@systematixgroup.in
Ashish Poddar Consumer Durables, Building Materials, Small & Midcaps +91-22-6704 8039 ashishpoddar@systematixgroup.in
Ashutosh Joytiraditya Consumer, Retail +91-22-6704 8068 ashutoshj@systematixgroup.in
Praful Bohra Pharmaceuticals and Healthcare +91-22-6704 8064 prafulbohra@systematixgroup.in
Pratik Tholiya Speciality Chem, Agrichem, Sugar and Fertilizer, Textiles and Packaging +91-22-6704 8028 pratiktholiya@systematixgroup.in
Premal Kamdar Consumer Staples +91-22-6704 8090 premalkamdar@systematixgroup.in
Rahul Jain Metals & Mining, Cement +91-22-6704 8066 rahuljain@systematixgroup.in
Rakesh Kumar Banking, Insurance +91-22-6704 8041 rakeshkumar@systematixgroup.in
Ronak Sarda Auto, Auto Ancillaries +91-22-6704 8059 ronaksarda@systematixgroup.in
Shubhranshu Mishra NBFCs & Diversified Financials +91-22-6704 8024 shubhranshumishra@systematixgroup.in
Harsh Mittal Cement, Building Materials, Paints +91-22-6704 8098 harshmittal@systematixgroup.in
Hena Vora NBFCs & Diversified Financials +91-22-6704 8045 henavora@systematixgroup.in
Nikhil Shah Banking, Insurance +91-22-6704 8091 nikhilshah@systematixgroup.in
Poorvi Banka Auto, Auto Ancillaries +91-22-6704 8063 poorvibanka@systematixgroup.in
Pranay Shah Consumer Durables, Building Materials, Small & Midcaps +91-22-6704 8017 pranayshah@systematixgroup.in
Shweta Dikshit Metals & Mining +91-22-6704 8042 shwetadikshit@systematixgroup.in
Shilpashree Venkatesh Macro-Strategy +91-22-6704 8078 shilpav@systematixgroup.in
Tausif Shaikh Pharmaceuticals and Healthcare +91-22-6704 8046 tausifshaikh@systematixgroup.in
Varun Gajaria Midcaps +91-22-6704 8081 varungajaria@systematixgroup.in
Equity Sales & Trading
Name Desk-Phone E-mail
Vipul Sanghvi Director and Head - Sales +91-22-6704 8062 vipulsanghvi@systematixgroup.in
Ashok Kumar Agarwal Sales +91-22-6704 8058 ashokagarwal@systematixgroup.in
Jigar Kamdar Sales +91-22-6704 8060 jigarkamdar@systematixgroup.in
Nirbhay Kumar Singh Sales +91-22-6704 8061 nirbhaysingh@systematixgroup.in
Rahul Khandelwal Sales +91-22-6704 8033 rahul@systematixgroup.in
Pawan Sharma Director and Head - Sales Trading +91-22-6704 8067 pawansharma@systematixgroup.in
Mukesh Chaturvedi Vice President and Co Head - Sales Trading +91-22-6704 8074 mukeshchaturvedi@systematixgroup.in
Vinod Bhuwad Sales Trading +91-22-6704 8051 vinodbhuwad@systematixgroup.in
Rashmi Solanki Sales Trading +91-22-6704 8097 rashmisolanki@systematixgroup.in
Karan Damani Sales Trading +91-22-6704 8053 karandamani@systematixgroup.in
Vipul Chheda Dealer +91-22-6704 8050 vipulchheda@systematixgroup.in
Amit Sawant Dealer +91-22-6704 8054 amitsawant@systematixgroup.in
Paras Shah Dealer +91-22-6704 8047 parasshah@systematixgroup.in
Suketu Vyas Dealer +91-22-6704 8050 suketuvyas@systematixgroup.in
Corporate Access
Audrey Leolyn Mendonca Assistant Vice President +91-22-6704 8088 audreymendonca@systematixgroup.in
Production
Yukti Vidyarthi Editor +91-22-6704 8071 yukti@systematixgroup.in
Mrunali Pagdhare Production +91-22-6704 8057 mrunalip@systematixgroup.in
Vijayendra Achrekar Production +91-22-6704 8089 vijayendraachrekar@systematixgroup.in
Operations
Sachin Malusare Vice President +91-22-6704 8055 sachinmalusare@systematixgroup.in
Sugandha Rane Assistant Vice President +91-22-6704 8056 sugandha@systematixgroup.in
Jignesh Mistry Manager +91-22-6704 8049 jigneshmistry@systematixgroup.in
Ravikiran Dasaka Manager +91-22-6704 8019 ravikiran@systematixgroup.in
Ravi Agarwal Assistant Manager +91-22-6704 8016 raviagarwal@systematixgroup.in
DISCLOSURES/APPENDIX
I. ANALYST CERTIFICATION
I, Amar Kedia, hereby certify that (1) views expressed in this research report accurately reflect my/our personal views about any or all of the subject securities or issuers referred to in
this research report, (2) no part of my/our compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in this research report by
Systematix Shares and Stocks (India) Limited (SSSIL) or its group/associate companies, (3) reasonable care is taken to achieve and maintain independence and objectivity in making any
recommendations.
Disclosure of Interest Statement Update

Analyst holding in the stock No
Served as an officer, director or employee No
II. ISSUER SPECIFIC REGULATORY DISCLOSURES, unless specifically mentioned in point no. 9 below:
1. The research analyst(s), SSSIL, associates or relatives do not have any financial interest in the company(ies) covered in this report.
2. The research analyst(s), SSSIL, associates or relatives collectively do not hold more than 1% of the securities of the company(ies) covered in this report as of the end of the
month immediately preceding the distribution of the research report.
3. The research analyst(s), SSSIL, associates or relatives did not have any other material conflict of interest at the time of publication of this research report.
4. The research analyst, SSSIL and its associates have not received compensation for investment banking or merchant banking or brokerage services or any other products or
services from the company(ies) covered in this report in the past twelve months.
5. The research analyst, SSSIL or its associates have not managed or co-managed a private or public offering of securities for the company(ies) covered in this report in the previous
twelve months.
6. SSSIL or its associates have not received compensation or other benefits from the company(ies) covered in this report or from any third party in connection with this research
report.
7. The research analyst has not served as an officer, director or employee of the company(ies) covered in this research report.
8. The research analyst and SSSIL have not been engaged in market making activity for the company(ies) covered in this research report.
9. Details of SSSIL, research analyst and its associates pertaining to the companies covered in this research report:
Sr. Yes /
Particulars
No. No.
1 Whether compensation was received from the company(ies) covered in the research report in the past 12 months for investment banking transaction by SSSIL. No
2 Whether research analyst, SSSIL or its associates and relatives collectively hold more than 1% of the company(ies) covered in the research report. No
3 Whether compensation has been received by SSSIL or its associates from the company(ies) covered in the research report. No
Whether SSSIL or its affiliates have managed or co-managed a private or public offering of securities for the company(ies) covered in the research report in the
4 No
previous twelve months.
Whether research analyst, SSSIL or associates have received compensation for investment banking or merchant banking or brokerage services or any other
5 No
products or services from the company(ies) covered in the research report in the last twelve months.
10. There is no material disciplinary action taken by any regulatory authority that impacts the equity research analysis activities.
STOCK RATINGS
BUY (B): The stock's total return is expected to exceed 15% over the next 12 months.
HOLD (H): The stock's total return is expected to be within -15% to +15% over the next 12 months.
SELL (S): The stock's total return is expected to give negative returns of more than 15% over the next 12 months.
NOT RATED (NR): The analyst has no recommendation on the stock under review.
INDUSTRY VIEWS
ATTRACTIVE (AT): Fundamentals/valuations of the sector are expected to be attractive over the next 12-18 months.
NEUTRAL (NL): Fundamentals/valuations of the sector are expected to neither improve nor deteriorate over the next 12-18 months.
CAUTIOUS (CS): Fundamentals/valuations of the sector are expected to deteriorate over the next 12-18 months.
III. DISCLAIMER
The information and opinions contained herein have been compiled or arrived at based on the information obtained in good faith from sources believed to be reliable. Such information
has not been independently verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy completeness or correctness.
This document is for information purposes only. This report is based on information that we consider reliable; we do not represent that it is accurate or complete and one should exercise
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India - Infra Sector

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India Infrastructure Sector

An undeniable growth opportunity constrained by fiscal stress

India Infrastructure sector Systematix

An undeniable growth opportunity constrained xx December

inexpensive valuations juxtaposed against a significantly improved balance sheet

Source: CMIE, Systematix Research Source: CMIE, Systematix Research

Interest payments as % of debt (Borrowing cost) Govt debt/Govt revenue

Source: CMIE, Systematix Research Source: CAG, Systematix Research

1,500 20,000 0.8

1,000 15,000 0.6

Source: Company, Systematix Research, Bloomberg Source: Company, Systematix Research

Source: Company, Systematix Research, Bloomberg Source: Company Systematix Research

Exhibit 16: Valuation comparison

Infrastructure capex: Need of the hour for growth revival

Infrastructure deficit in India directly impacts India’s global competitiveness

National Infrastructure Pipeline comes to the fore with plans

Social Infrastructure Social Infrastructure

8,890 28,300 Railway Tracks Electricity Generation

Ports Electricity Transmission

Inland Waterways Oil/ Gas/ LNG storage

645 129 106

Transport is the largest driver of infrastructure spending but

Source: Systematix Research, India Investment Grid

Roads Railway Tracks

The roads segment has witnessed the bulk of the action

Exhibit 35: Trend in road network in India

3 5.6 5.6 5.9

Source: MoRTH annual reports

Roads sector investment % share in total infra investment (RHS)

Source: Appraisal documents for five-year plans, CRIS estimates

Exhibit 37: Achievement targets set by MoRTH

Exhibit 40: Roads sector reform timeline

NHAI has been awarding more HAM projects than EPC

Source: NHAI, Systematix Research

Source: NHAI, Systematix Research Source: NHAI, Systematix Research

• An analysis of the geographical mix of development-stage projects and land

Conceptualization Development Implementation

Source: Systematix Institutional Research, India Investment Grid

Land acquired - No Land acquired - Yes

Source: Systematix Institutional Research, India Investment Grid

Source: Systematix Research, India Investment Grid

Exhibit 48: EPC/HAM is the preferred route

EPC HAM Not Disclosed PPP

Source: Systematix Research, India Investment Grid

Railways has strong potential but needs to act fast

Source: Indian Railways Statistical Summary

Source: Systematix Research, India Investment Grid

• As compared to an annual spend of Rs 1.5trn on railways in FY20, the total NIP

Ports and Airports

Total population Urbanization (RHS)

Exhibit 63: Year-wise urban infrastructure capex plan over FY20-25

Exhibit 64: Urban sector reforms timeline

Urban Public Transport

Rail Corridors &

Conceptualization Development Implementation EPC HAM Not Disclosed PPP

Source: Systematix Research, India Investment Grid

Water segment has been the current government’s focus area

100% 100% 99%

Exhibit 72: Urban population’s access to drinking water services

Source: World Bank

Source: World Bank

JJM Rural Implementation